Your company is considering a $1,000,000 capital project that will generate an after-tax cash flow of $250,000 for each year of the project’s 7-year lifespan. The weighted average cost of capital is 15%. The floatation cost for equity is 5% and for debt is 3%. The company’s target D/E ratio is 0.6. Calculate the following returns:

(1/100 of one percent without % sign, e.g., 12.671, if a negative percentage, -9.56). For dollar amounts, record to the nearest dollar with no dollar sign, e.g., 45986, if negative, -45986).

1. Weighted average floatation cost (%):

2. True cost of the project ($):

3. NPV ($):

Answer rating: 100% (QA)

a To begin with the weighted average floatation cost as the name suggests is the sum of equity and debt floatation costs multiplied by their respectiv... View the full answer