A Firm Is Considering Investing in a New Project with an Upfront

question 105

Multiple Choice

A firm is considering investing in a new project with an upfront cost of $400 million.The project will generate an incremental free cash flow of $50 million in the first year and this cashflow is expected to grow at an annual rate of 4% forever.If the firm's WACC is 13%,what is the value of this project?

• A)$155.6 million
• B)$555.6 million
• C)$577.8 million
• D)$177.8 million

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Definitions:

Product Advertisements

Advertisements that focus on selling a product or service and which take three forms: (1) pioneering (or informational), (2) competitive (or persuasive), and (3) reminder.

Nonpersonal Communication

Any form of message dissemination that does not involve direct personal contact, including mass media advertising, sales promotions, and public relations.

Identified Sponsor

In advertising, a sponsor whose name and identity is known and disclosed in the message to inform or persuade the audience.

Advertising

The action of calling public attention to products, services, needs, etc., through paid announcements by an identified sponsor.