John's pizzeria is considering an investment in new pizza making equipment. The equipment...
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John's pizzeria is considering an investment in new pizza making equipment.
The equipment costs $300,000 and will provide annual aftertax inflows of $100,000 at the end of each of the next 6 years. The firms market value debt/equity ratio is 150%, its cost of equity is 11%, and its pretax cost of debt is 7%. The floatation cost of debt and equity are 5% and 8% respectively. The firm's combined marginal federal and provincial tax rate is 40%. Assume the project is of approximately the same risk as the firm's existing operations. After considering floatation costs, what is the NPV of the proposed project?
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