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?

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by finding the present value of the perpetual cash flows and subtracting the initial investment. The perpetual after-tax cash flow is calculated as (Revenue - Cash Costs - Interest)*(1 - Tax Rate). The NPV is then the present value of these cash flows divided by the levered discount rate, minus the initial project cost.

Blue Water Boats Is Considering a New Project with Perpetual