Carson Electronics Uses 70 Percent Common Stock and 30 Percent

question 10

Multiple Choice

Carson Electronics uses 70 percent common stock and 30 percent debt to finance its operations.The aftertax cost of debt is 5.4 percent and the cost of equity is 15.4 percent.Management is considering a project that will produce a cash inflow of $36,000 in the first year.The cash inflows will then grow at 3 percent per year forever.What is the maximum amount the firm can initially invest in this project to avoid a negative net present value for the project?

• A)$299,032
• B)$382,979
• C)$411,406
• D)$434,086
• E)$441,414

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Definitions:

Mutually Exclusive

Mutually exclusive events are those that cannot occur simultaneously; the occurrence of one event excludes the possibility of the other.

Financial Consultants

Professionals who provide expert advice on matters related to finance, including investments, tax planning, and retirement strategies.

Conditional Probability

The likelihood of one event happening when it is known that a second event has taken place already.

Union

In set theory, the combination of two sets to form a set that includes any elements that are a member of at least one of the original sets.