Problem:
ACS Industries is considering a project with an initial cost of $6.2 million. The project will produce cash inflows of $1.8 million a year for five years. The firm uses the subjective approach to assign discount rates to projects. For this project, the subjective adjustment is +2%. The firm has a pre-tax cost of debt of 6.7% and a cost of equity of 9.4%. The debt-equity ratio is 0.6 and the tax rate is 35%.
Required:
Question: What is the net present value of the project?
a. $742,067
b. $811,006
c. $733,333
d. $790,909
e. $710,053
Note: Provide support for rationale.