Joshua industries is considering a new project with cash inflows of $478,000 for the indefinite future. cash costs are 68 percent of the cash inflows. the initial cost of the investment is $685,000. the tax rate is 34 percent and the unlevered cost of equity is 14.2 percent. the firm is financing $200,000 of the project cost with debt. what is the adjusted present value of the project?

a. $102,429.67
b. $98,311.16
c. $32,408.18
d. $93,940.85

D. $93,940.85

Explanation:

Cash inflows (Ci) = $478,000

Cash costs (Cc) = 0.68 of Ci

Initial investment (I) = $685,000

Tax rate (r) = 0.34

Unlevered cost of equity (Ue) = 0.142

Amount financed with cost of debt (D) = $200,000

Earnings after taxes (E) are given by:

Net present value is given by the earnings adjusted by the unlevered cost of equity minus the initial investment:

The adjusted present value (APV) is given by the NPV added to the present value of the cost of debt financing:

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know