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A proposed project lasts 3 years and has an initial investment of $500,000. The after tax cash flows are estimated at $120,000 for year 1, $240,000 for year 2, and $240,000 for year 3, The firm has a target debt/equity ratio of 0.6. The firm's cost of equity is 15% and its cost of debt is 8%. The tax rate is 35%. What is the NPV of this project?

(hint: remember that the D/E is saying that debt is 60% of equity. In other words, you need to find D/A and E/A for the appropriate weights.)

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M92527661

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