Problem: Headmount Electronics is evaluating an expansion project that is expected to cost $20 million and generate an after-tax cash flow of $4 million for the next 10 years. The tax rate for the company is 35%.
Headmount Electronics has target debt-equity ratio 1:1. Its cost of equity is 16,9% whereas its pretax cost of debt is 14%. The floatation cost of equity is 12% whereas the floatation cost of debt is 14%.
Required:
What is the NPV for the expansion project?