Your Company Is Considering a Project That Will Cost $100

question 82

Multiple Choice

Your company is considering a project that will cost $100. The project will generate after-tax cash flows of $37.50 per year for five years. The WACC is 10 percent and the firm's D/A ratio is 0.70. The flotation cost for equity is 6 percent, the flotation cost for debt is 3 percent, and your firm does not plan on issuing any preferred stock within its capital structure. If your firm follows the practice of incorporating flotation costs into the project's initial investment, what is the firm's flotation-adjusted cash flow in year 0?

• A) −$90.16
• B) −$104.06
• C) −$96.25
• D) −$102.72

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Definitions:

Out-Of-Pocket Costs

Expenses for medical care that aren't reimbursed by insurance and must be paid by the patient.

Doctor Visits

Occasions when patients seek professional medical advice, diagnosis, or treatment from physicians in a healthcare setting.

Health Care Rationed

The allocation of healthcare resources in a manner that limits access to certain treatments or services to manage costs and resources effectively.

Rationed

The controlled distribution of scarce resources, goods, or services, typically in contexts of scarcity, war, or economic conditions.