Fairmont Industries in Homework 10.35 changed its capital structure as follows: 1. Cost of Equity at 10% per year. 2. Cost of Debt at 8% per year before tax 3. Equity and Debt will be 50% each for each project 4. MARR = WACC 5. Each loan will be amortized for 10 years, payment is due once a year at the end of each year
A project requires initial investment of $250,000 and will generate an annual net income of $38,200 (before loan payment) for 10 years at end of each year. Should Fairmont Industries invest in this project? Why or Why not? (Do not consider tax effect) (25% show calculations)