What are the potential risks that increase cost of financing

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A company, which has a tax rate of 18%, is considering investing in an extension of its main operating line, a project that would require an investment of $1 million, and would generate the following net cash flows over the next 4 years:

Year 1: 200,000$
 Year 2: 350,000$
Year 3: 500,000$
Year 4: 400,000$

The expected rate of return for projects of that nature is 12%, and the company usually likes to recoup its investment within 3 years.

Problem a) Assess the financial viability of this investment, and justify your decision.

Problem b) What are the potential risks that increase your cost of financing?

Reference no: EM133009861

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