Calculate the npv using the fte method

Reference no: EM133269826

Question - DIY Inc. has is evaluating a 12-year project. The project requires a machine that costs $125,000 and has a CCA rate of 25%. The machine is the only asset in the asset class and its salvage value is $8,000 at year 12. The project generates $42,500 annual before-tax cash flow for 12 years. The cost of debt is 6% and the tax rate is 30%.

a) Assume DIY's WACC is 10%, calculate the NPV using the WACC method.

b) Assume DIY borrows $35,000 to finance the project and the cost of equity is 12.5%, calculate the NPV using the FTE method.

c) Assume the flotation cost is 3% of the amount borrowed and DIY needs $35,000 (net of flotation cost) to finance the project. If the cost of unlevered equity is 10.5%, calculate the NPV using the APV method.

Reference no: EM133269826

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