Syntax Tar Sand Inc.,a Canadian company,has an opportunity to invest in Peru.The project requires an immediate cash outlay of $3 million and is expected to provide after-tax cash flows of $800,000 in year 1,$1,000,000 in year 2,$1,200,000 in year 3,and $1,600,000 in year 4.The appropriate discount rate for a similar project in Canada is 12 percent.The risks of implementing such a project in Peru will require a risk premium of 4 percent.What will be the impact on the shareholder value of Syntax if the firm undertakes this project in Peru?

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Quizplus · Accepted Answer

Project's required return = 12% + 4% = 16%
Shareholder value of Syntax increases by the value of the positive NPV 11ea8229_3484_a6fc_bbd8_e93096b84df7_TB1726_00