Vargo's has a target debt-to-value ratio of .6. The pretax cost of debt is 8.4 percent, the tax rate is 21 percent, and the unlevered cost of equity 13.2 percent. A project the firm is considering has a cash flow to the levered equityholders of $48,700 and an initial unborrowed cost of $216,000. What is the NPV of the project? A) $41,836 B) $48,208 C) $62,342 D) $61,003 E) $38,367

Option(A) is the correct answer to the given question .

Explanation:

As mention in the given question following are the points

The cost of unlevered equity = R1 = 13.2%,

The cost pretex of the Debt = Rd1 = 8.4 % of the tax Rate is 21 % and  Ratio of the target Debt= 0.6

Target of the Debt-to the-Equity Ratio cab be determined

= DE1 = 0.6 /  ( 1- 0.6 )

= 3/2

The cost of the levered Equity

= Re1 = R1+ (1-Tax Rate) x DE1 x (R1-Rd1)

= 13.2 + (1-0.21) x (3/2) x (13.2-8.4)

= 18.888 %

So levered the Equity Cash Flow

= $ 48700 also the

Initial unborrowed cost = $ 216000  

Therefore NPV of the project

= (48700 / Re1) - 216000

= (48700 / 0.18888) - 216000

= $ 41835.663

=~ $ 41836

explanation:

with the profits from the european sales, merchants purchased europe's manufactured  goods, including tools and weapons. then the merchants shipped those manufactured  goods, along with the  american  sugar and rum, to west africa where they were bartered for  slaves.

answer; clear and present danger test;