Use the table for the question(s)below.

-You own a Canadian firm that invests in a U.S.project with the cash flows shown in the table above.Given a corporate tax rate of 40% and a WACC of 8.9%,what is the NPV of the investment?

Question

Use the table for the question(s)below.
 
-You own a Canadian firm that invests in a U.S.project with the cash flows shown in the table above.Given a corporate tax rate of 40% and a WACC of 8.9%,what is the NPV of the investment?

Quizplus · Accepted Answer

To calculate the Net Present Value (NPV) of an investment, you need to discount the future cash flows back to their present value using the Weighted Average Cost of Capital (WACC) and then subtract the initial investment. The correct answer, E) $7.2 million CAD, suggests that after accounting for the 40% corporate tax rate and discounting future cash flows at a WACC of 8.9%, the present value of the investment's cash flows, minus the initial investment, equals $7.2 million CAD. This calculation would involve applying the tax rate to the cash flows, discounting them using the given WACC, and then summing these values, subtracting any initial investment costs to find the NPV.

Use the Table for the Question(s)below