What is the value of the project

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Tech has $900,000 of debt on its balance sheet and pays corporate taxes at the 40% rate. The CEO of Tech faces an investment opportunity that requires an initial investment of $50,000 in new machinery and is expected to generate annual cash flows (before tax) of $30,000 for two years, starting in the first year. At the end of the second year, Tech will be able to recover a salvage value of $8,000 by selling the project’s machinery. Moreover, Tech will be able to recover $2,000 of its inventory at the end of the second year (change in net working capital). The unlevered cost of capital is 10%.

What is the value of the project if Tech decides to issue $40,000 in bonds at an interest rate of 8% to finance the project? MUST SHOW ALL STEPS.

Reference no: EM131983880

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