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    Net Present Value Analysis of a Company

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    You and your friends have decided to examine the potential of starting a series of restaurants in and around college campuses in Boston that cater exclusively to students. Assume that (together) you have $120,000 (equity) for this project which requires an initial investment of $200,000. The remaining amount of $ 80,000 can be raised through issuing bonds. You are given the following additional information about the project.
    Year Free Cash Flow
    1 $ 20,000
    2 $ 40,000
    3 $ 60,000
    4 $ 80,000
    5 $ 100,000
    Other Information
    Beta based on similar businesses 2.00
    Risk Free Rate 4.50% / year
    Market Risk Premium 8.00% / year
    Price per Bond $ 1,050
    Face Value of Bonds $ 1,000
    Coupon Rate on Bonds 8.50 %
    Coupons Paid Monthly
    Maturity of Bonds 5 years
    Tax rate for firm 30%

    Will you accept or reject this project? Why?

    Please show your work to help me going forward.

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    Solution Summary

    This solution deals with issues under finance and shows how to calculate the weighted average cost of capital and net present value with step-by-step calculations enclosed in an Excel file.