Question: Red Royal Media is evaluating a 1-year project that would involve an initial investment in equipment of 26,100 dollars and an expected cash flow of
Red Royal Media is evaluating a 1-year project that would involve an initial investment in equipment of 26,100 dollars and an expected cash flow of 29,500 dollars in 1 year. The project has a cost of capital of 11.77 percent and an internal rate of return of 13.03 percent. If Red Royal Media were to use 26,100 dollars in cash from its bank account to purchase the equipment, the net present value of the project would be 293 dollars. However, Red Royal Media has no cash in its bank account, so using money from its account is not possible. Therefore, the firm would need to borrow money to raise the 26,100 dollars. If Red Royal Media were to borrow money to raise the 26,100 dollars, the interest rate on the loan would be 8.22 percent. Red Royal Media would receive 26,100 dollars from the bank at the start of the project and would pay 28,245 dollars to the bank in 1 year. What is the NPV of the project if Red Royal Media borrows 26,100 to pay for the project? Number
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