Reference no: EM132501078

What is the NPV of the project using the WACC methodology, given the following information?

i = rdebt = 10% OCF0 = -$100,000

Ku = rassets = 15% OCF1-4 = $39,800 = 25,000 × ($5 - $3) × (1 - 0.34) + $20,000 × 0.34

Kl = requity = 24.9% OCF5 = $43,100 = $39,800 + $5,000 × (1 - 0.34)

K = rWACC = 11.20% Tax rate = 34% Debt-to-equity ratio = 3 Risk-free rate = 2%

The 5-year project requires equipment that costs $100,000. If undertaken, the shareholders will contribute $25,000 cash and borrow $75,000 with an interest-only loan with a maturity of 5 years and annual interest payments. The equipment will be depreciated straight-line to zero over the 5-year life of the project. There will be a pre-tax salvage value of $5,000. There are no other start-up costs at year 0. During years 1 through 5, the firm will sell 25,000 units of product at $5; variable costs are $3; there are no fixed costs.

Group of answer choices

A. $48,300.47

B. $49,613.03

C. $102,727.55

D. $58,028.68