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Same risk level as the firm current operations

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Suppose Hu's has 60,000 shares of common stock outstanding with a beta of 1.2, a market price of $40 a share, and dividends increase by 2.5 percent annually. The risk-free rate is 3 percent, and the market risk premium is 8 percent. The firm also has $450,000 of debt outstanding that is selling at 98 percent of par that has a yield to maturity of 7.2 percent. The tax rate is 35 percent.

The firm is considering a project that has the same risk level as the firm's current operations, an initial cost of $3,000 and cash inflows of $5,000, $2,000, and $8,000 for Years 1 to 3, respectively. What is the NPV?

Reference no: EM132516285

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