An analyst has gathered the following data about a company with a 12 percent cost of capital.Project AProject BInitial cost$15000$20000Life5years4yearsCash inflows$5000/year$7500/year A company is considering a $10000 project that will last 5 years. Annual after tax cash flows are expected to be $3000 Target debt/equity ratio is 0.4 Cost of equity is 12% Cost of debt is 6% Tax rate 34% What is the project’s net present value (NPV)
A. + $1460.
B. + $1245
C. $0.
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An analyst has gathered the following data about a company with a 12 percent cost of capital.Project AProject BInitial cost$15000$20000Life5years4yearsCash inflows$5000/year$7500/year The most accurate way to account for flotation costs when issuing new equity to finance a project is to :
A. increase the cost of equity capital by dividing it by ( 1 - flotation cost).
B. adjust cash flows in the computation of the project NPV by the dollar amount of the flotation costs.
C. increase the cost of equity capital by multiplying it by ( 1 + flotation cost).