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Is adopting this project a good investment strategy

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Reference no: EM133021774

Question - Suppose you are the only owner of a firm, James Smith Co, a sportsware retail company located in Toronto. You are considering a new investment project that is expected to 63.5 million dollars to be financed and will return 13.20 million dollars per year for 7 years in net cash flows. The ratio of debt to equity is 1.5 to 1. The cost of equity is 13%, the cost of debt is 9%, and the tax rate is 35%. The flotation cost for equity is 10% and the flotation cost of debt is 2%. Is adopting this project a good investment strategy? Discuss.

Reference no: EM133021774

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