The firm gets 70 of its capital from common stock and 30


The firm gets 70% of its capital from common stock and 30% from debt. The debtholder’s required rate of return is 8%. The equity holder’s required rate of return is 13% and the firm’s tax rate is 20%. The project involves an immediate investment of $10,000 for the purchase and installation of equipment. The project will require the immediate purchase of $1000 in inventory, and increase in accounts receivable of $800. Accounts payable will increase $600. The equipment will be depreciated straight-line, over 4 years, down to a salvage value of $1000. The project is expected to generate after tax cash flows [=ebit(1-t)+ dep] in the amount of $5,166 at the end of each of the next four years. Assume that at the end of the fourth year the related equipment is sold for $2,000, and the changes in working capital are reversed. What is the net present value (NPV) of the project? What is IRR?

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Financial Management: The firm gets 70 of its capital from common stock and 30
Reference No:- TGS01400627

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