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Should the project be accepted or rejected

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Question - Gradient Ltd is evaluating a new project that has the same risk as the overall firm. The cost is estimated at $75,000 and the expected cash flows are:

Year - Cash Flow

1 $18,000

2 $25,400

3 $35,000

4 $17,900

Currently the company has 50% debt and 50% equity. The cost of Spark's debt is 9% and T-bills are yielding 5%. The market risk premium is 10% and Spark Ltd has a beta of 1.2. Tax rate is 30%. Should the project be accepted or rejected? Briefly explain why.

Reference no: EM132549278

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