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Dorman Industries has a new project available that requires an initial investment of $6.1 million. The project will provide unlevered cash flows of $835,000 per year for the next 20 years. The company
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Dorman Industries has a new project available that requires an initial investment of $6.1 million. The project will provide unlevered cash flows of $835,000 per year for the next 20 years. The company will finance the project with a debt-to-value ratio of .3. The company’s bonds have a YTM of 6.2 percent. The companies with operations comparable to this project have unlevered betas of 1.31, 1.24, 1.46, and 1.41. The risk-free rate is 3.2 percent, and the market risk premium is 6.4 percent. The company has a tax rate of 40 percent.

Required:
What is the NPV of this project?

User Matt Ridge
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1 Answer

16 votes
16 votes

Answer:

NPV = $ 400,115.43

Step-by-step explanation:

NPV of this project = $ 400,115.43

Dorman Industries has a new project available that requires an initial investment-example-1
Dorman Industries has a new project available that requires an initial investment-example-2
User Wayne Werner
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