i = rdebt = 6% OCF0 = $100,000 Ku = rassets = 12% OCF1-4 = $39,800 = 25,000 ($5 $3) (1 0.34) + $20,000 0.34 Kl = requity = 27.84% OCF5 = $43,100 = $39,800 + $5,000 (1 0.34) K = rWACC = 8.74% = Tax rate = 34% Debt-to-equity ratio = 4 Risk-free rate = 2%

The 5-year project requires equipment that costs $100,000. If undertaken, the shareholders will contribute $20,000 cash and borrow $80,000 at 6 percent with an interest-only loan with a maturity of 5 years and annual interest payments. The equipment will be depreciated straight-line to zero over the 5-year life of the project. There will be a pre-tax salvage value of $5,000. There are no other start-up costs at year 0. During years 1 through 5, the firm will sell 25,000 units of product at $5; variable costs are $3; there are no fixed costs. What is the NPV of the project using the WACC methodology?

a. $58,028.68

b. $102,727.55

c. $315,666.16

d. $49,613.03