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FIN - Determine the NPV

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Question;Determine the NPV of the following project for Company X. The project is equally as risky as the company itself. The project will cost $20 million to get running in the first year. The cash flows produced from the project will be:$1M in year 1$2M in year 2$4M in year 3$5M in years 4-10At the end of 10 years the project will end with zero salvage value.The company stock currently has a beta of 1.25 and the expected return of the market is 8%. The company currently operates with 45% debt financing and t-bills are currently returning 4%. The expected return on debt is 6.5%. The company operates in a 35% tax bracket. What is the NPV and should the company invest in this project? Why or why not?

 

Paper#49358 | Written in 18-Jul-2015

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