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# Cash flow to equity, project NPV

Question 18
Greta's Gaskets is considering investment in a new production facility. Initial investment would be \$60 million, financed by \$35 million of equity and \$25 million of debt. The firm will maintain a constant leverage ratio over time. The expected return on levered equity for this project is 9.5%, while the expected return on debt is 6.5%. The project will generate pre-tax cash flows each year of \$10 million, and the tax rate is 34%. The cash flow to equity each year is __________, and the project NPV is __________.

a.\$4.98 million, \$17.37 million
b.\$5.53 million, -\$1.82 million
c.\$5.53 million, \$23.18 million
d.\$7.15 million, \$37.59 million
e.\$7.15 million, \$40.29 million

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Question 18
Greta's Gaskets is considering investment in a new production facility. Initial investment would be \$60 million, financed by \$35 million of equity and \$25 million of debt. The firm will maintain a constant leverage ratio over time. The expected return on levered equity for this project is 9.5%, ...

#### Solution Summary

Calculates cash flow to equity and project NPV.

\$2.19