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A Firm Has a Capital Structure of 40% Debt and 60

Question 37

Multiple Choice

A firm has a capital structure of 40% debt and 60% equity.Debt can be issued at a return of 10%,while the cost of equity for the firm is 15%.The firm is considering a $50 million expansion of their production facility.The project has the same risk as the firm overall and will earn $12 million per year for 6 years.What is the NPV of the expansion if the tax rate facing the firm is 40%?


A) -$0.4 million
B) -$0.2 million
C) $0 million
D) $0.2 million

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