Tulip Company is evaluating a project that requires a $143,000 investment. The anticipated cash flows are $52,000 in the first year, $23,000 for the second year, no cash flow for the next 2 years, $50,000 in the fourth year and $2,000 in fifth year. There is no salvage value for this project. Tulip Company currently has a 45% debt and 55% equity structure. Their most recent $1000 face value bond is selling for $1150. This bond has a coupon rate of  12% which are paid yearly and 9 years to maturity. Tulip Company uses CAPM model to calculate its cost of equity. It has a beta of 1.2. The current 9 year Treasury Bond has a 3.2% yield. For the corresponding period, S&P 500 index has a return of 18%. The applicable corporate tax rate for Umbrella is 10%.

1. What is the approximate NPV of this project for Umbrella Company?
2. What is IRR? Is this a good project? why (explain shortly)?
3. Please explain why do we need to calculate WACC? 

Answer rating: 100% (QA)

To calculate the approximate NPV of the project for Tulip Company we need to discount the anticipated cash flows by the weighted average cost of capit... View the full answer