You are planning to issue debt to finance a new project. The project will require $20.86 million in financing and you estimate its NPV to be $15.199 million. The issue costs for the debt will be 2.7% of face value. Taking into account the costs of external financing, what is the NPV of the project? The new NPV will be $ __ ? (Round to the nearest dollar.)
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You are planning to issue debt to finance a new project. The project will require $20.86 million in financing and you estimate its NPV to be $15.199 million. The issue costs for the debt will be 2.7% of face value. Taking into account the costs of external financing, what is the NPV of the project?
The new NPV will be $ __ ? (Round to the nearest dollar.)
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- You are evaluating a project that requires an investment of $97 today and garantees a single cash flow of $115 one year from now. You decide to use 100% debt financing, that is, you will borrow $97. The risk-free rate is 6% and the tax rate is 30%. Assume that the investment is fully depreciated at the end of the year, so without leverage you would owe taxes on the difference between the project cash flow and the investment, that is, $18. a. Calculate the NPV of this investment opportunity using the APV method. b. Using your answer to part (a), calculate the WACC of the project. c. Verify that you get the same answer using the WACC method to calculate NPV. d. Finally, show that flow-to-equity method also correctly gives the NPV of this investment opportunity.You are considering a risk-free investment that costs $4000 and pays $5000 in one year. You can either pay all cash for the investment or you can borrow part and pay cash for the other part. If you borrow $2000, you will be required to pay back $2080 in one year. The risk-free rate is 4%. What is the project’s NPV? Is the NPV affected if you borrow some of the funds?You are evaluating a project that costs $75,000 today. The project has an inflow of $ 155,000 in one year and an outflow of $65,000 in two years. What are the IRRs for the project? What discount rate results in the maximum NPV for this project? How can you determine that this is the maximum NPV?