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1) A planned project lasts three years and has the initial investment of $500,000. After tax cash flows are evaluated at $120,000 for year 1, $240,000 for year 2, and $240,000 for year three. Firm has a target debt/equity ratio of 0.6. Firm’s cost of equity is 15% and its cost of debt is 8%. Tax rate is 35%. Compute the NPV of this project? (hint: remember that D/E is saying that debt is 60% of equity. Or we can says, you require to determine D/A and E/A for suitable weights by using the formulas: D/E/(1+ D/E) =% or weight of debt and 1/(1+D/E) = % or weight of equity.)

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