Hartley, Inc. needs to purchase equipment for its 2,000 drive-ins nationwide. The total cost of the...

 

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Hartley, Inc. needs to purchase equipment for its 2,000 drive-ins nationwide. The total cost of the equipment is $2 million. It is estimated that the aftertax cash infows from the project will be $210,000 annually in perpetuity. Hartley has a market value debt-to-assets ratio of 40%. The frm's cost of equity is 13%, its pretax cost of debt is 8%, and the fotation costs of debt and equity are 2% and 8%, respectively. The tax rate is 34%. Assume the projec is of similar risk to the frm's existing operations. Ignoring fotation costs, what is the NPV of the proposed project? Hartley, Inc. needs to purchase equipment for its 2,000 drive-ins nationwide. The total cost of the equipment is $2 million. It is estimated that the aftertax cash infows from the project will be $210,000 annually in perpetuity. Hartley has a market value debt-to-assets ratio of 40%. The frm's cost of equity is 13%, its pretax cost of debt is 8%, and the fotation costs of debt and equity are 2% and 8%, respectively. The tax rate is 34%. Assume the projec is of similar risk to the frm's existing operations. Ignoring fotation costs, what is the NPV of the proposed project?

Answer rating: 100% (QA)

To calculate the net present value NPV of the proposed project we need to discount the future cash i... View the full answer