Your firm is considering a project very typical of those it takes, which requires an investment of $25m today and beginning in one year expected to produce a cash flow of $6m per year for 8 years total. Your firm has an equity market capitalization of $500m, has 10m shares outstanding, and pays a steady dividend of $8 per year. The firm’s debt consists of $400m worth of bond’s with a YTM of 8%, and the firm’s tax rate is 25%. What do the NPV and IRR methods recommend?

Answer rating: 100% (QA)

To calculate the NPV of the project we need to discount the future cash flows back to their present ... View the full answer