Problem:
Orchard Farms has a pretax cost of debt of 7.68 percent and a cost of equity of 15.2 percent. The firm uses the subjective approach to determine project discount rates. Currently, the firm is considering a project to which it has assigned an adjustment factor of -0.5 percent. The firm's tax rate is 34 percent and its debt-equity ratio is 0.45. The project has an initial cost of $4.3 million and produces cash inflows of $1.27 million a year for 5 years.
Required:
Question: What is the net present value of the project?
- $514,370.
- $628,721.
- $328,895.
- $121,619.
- $561,027.
Note: Provide support for rationale.