Question

Blue Water Boats is considering a new project with perpetual revenue of $435,000, cash costs of $310,000, and a tax rate of 21 percent. The firm plans to issue $250,000 of debt at an interest rate of 7.3 percent to help finance the initial project cost of $475,000. The levered discount rate is 16.7 percent. What is the net present value of this project?

Answer 1

Answer:

Net Present Value: 1,661,452,09

Explanation:

The net present value is the presetn value of the revenues less the cost from the company:

revenue:                435,000

interest expense:

250,000 x .073 =   (18,250)  

net income:           416,750‬

after tax:  416,750 x (1 - 21%) = 329,232.5‬

present value of the project (per perpetuity)

329,252.5 / 0.167 = 1,971,452.09

less the cash cost:   (310,000)

Net Present Value: 1,661,452,09