contestada

Sunny Day Manufacturing Company is considering investing in a one-year project that requires an initial investment of $475,000. To do so, it will have to issue new common stock and will incur a flotation cost of 2.00%. At the end of the year, the project is expected to produce a cash inflow of $595,000. The rate of return that Sunny Day expects to earn on its project (net of its flotation costs) is _______(rounded to two decimal places).

Respuesta :

Answer:

22.81%

Explanation:

Data provided in the question:

Initial investment = $475,000

Flotation cost = 2.00%

Cash inflow = $595,000

Now,

Amount of Flotation cost = Flotation cost  × Initial investment

= 0.02 × $475,000

= $9,500

Thus,

Rate of return = [ Cash inflow ÷ (Initial investment + Flotation cost) ] - 1

or

Rate of return = [ $595,000 ÷ ($475,000 + $9,500) ] - 1

or

Rate of return = 0.2281 or 22.81%

Otras preguntas