Brookfield Heavy Equipment Is Considering a Project That Will Produce

question 41

Multiple Choice

Brookfield Heavy Equipment is considering a project that will produce after tax cash of $40,000 per year for 5 years. The project will require an initial investment of $144,191. At what discount rate will the project reach break-even NPV?

• A) 8%
• B) 10%
• C) 12%
• D) 11.11%

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Definitions:

WACC

The Weighted Average Cost of Capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. It represents the minimum return that a company must earn on its existing asset base to satisfy its creditors, owners, and other providers of capital.

Component Cost

The cost associated with each separate element (debt, equity, etc.) that comprises the overall cost of capital for a firm.

Noncallable Bond

A type of bond that cannot be redeemed by the issuer before its maturity date, thus offering investors protection against early repayment risks.

Annual Coupon

The yearly interest payment made to bondholders, expressed as a percentage of the bond's face value.