Bread Box, Inc. finances its operations using $1.50 of debt for every $2 of common stock....

 

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Bread Box, Inc. finances its operations using $1.50 of debt for every $2 of common stock. The pre- tax cost of debt is 7.5 percent, the cost of equity is 11 percent, and the tax rate is 34 percent. Currently, the firm is considering a small project that it considers to be equally as risky as the overall firm. The project has an initial cash outlay of $18,500 and is expected to have a single cash inflow of $25,000 at the end of year two. What is the net present value of this project? Bread Box, Inc. finances its operations using $1.50 of debt for every $2 of common stock. The pre- tax cost of debt is 7.5 percent, the cost of equity is 11 percent, and the tax rate is 34 percent. Currently, the firm is considering a small project that it considers to be equally as risky as the overall firm. The project has an initial cash outlay of $18,500 and is expected to have a single cash inflow of $25,000 at the end of year two. What is the net present value of this project?

Answer rating: 100% (QA)

To calculate the net present value NPV of the project we need to discount the cash flows at the appr... View the full answer