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

question 85

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 cash flow 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
• E)$181.4 million

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Definitions:

Entrepreneurs

Visionary individuals who create, manage, and assume the risks of a new business venture, bringing new products or services to the market.

Production Innovations

Refers to new or improved methods of producing goods and services, which can increase efficiency and reduce costs.

New Products

Goods or services that have been recently introduced to the market, offering new features or benefits not previously available.

Entrepreneurial Function

The activities and responsibilities undertaken by entrepreneurs, including innovation, risk taking, and managing and planning for businesses.