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Corporate Finance

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Difficult

Project's NPV

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A firm with 50% debt to equity ratio has a cost of equity capital of 15%, a cost of debt of 9% and a tax rate of 33%. The firm is considering a project costing \$5,000 that will generate an annual cash flow of \$1,000 for the next 8 years.

What is the project’s net present value (NPV)?

A

+$34.10, so accept the project.

B

-$34.10, so do not accept the project.

C

-$235.41, so do not accept the project.

D

+$235.41, so accept the project.