Beta Industries is considering a project with an initial cost of $6.9 million. The project will produce cash inflows of $1.52 million a year for seven years. The firm uses the subjective approach to assign discount rates to projects. For this project, the subjective adjustment is 2.2 percent. The firm has a pretax cost of debt of 9.1 percent and a cost of equity of 17.7 percent. The debt-equity ratio is .57 and the tax rate is 34 percent. What is the net present value of the project

-$6.98 million

Explanation:

For computing the net present value first we have to find out the RATE which is shown below:

= Pre tax cost of debt × (1 - tax rate) × debt equity ratio ÷ (1 + debt equity ratio) + cost of equity × 1 ÷ (1 + debt equity ratio) + subjective adjustment

= 9.1% × (1 - 0.34) × 0.57 ÷ 1.57 + 17.7% × 1 ÷ 1.57 + 2.2%

= 15.65%

Now the net present value is

               (in $ millions)                                            (in $ millions)

YearCash flowsDiscount rate 15.65%PV of cash inflows  

0            -69                  1                               -69  (A)

1            15.2           0.8646779075               13.14

2            15.2           0.7476678837              11.36

3            15.2           0.6464919012               9.83

4            15.2            0.5590072643               8.50

5            15.2            0.4833612316              7.35

6             15.2           0.4179517783              6.35

7             15.2           0.361393669             5.49

Present value                                        62.02   (B)

Net present value                                -6.98   (B - A)

c

explanation:

c because the item on a bank statement is also referred to as an account statement. in addition, it provides the beginning balance, ending balance, statement date, transaction date for each transaction, payee, customer name and address, statement period, the account holder's account number, and the bank's customer service number