Can someone explain this to me please expected, question, studying, someone, company

cyber21

prob easy and stupid question and maybe cuz its getting late for me and iv been studying all day... but some reason cant figure out the simple math for calc the weights on debt and equity


thanks for the help




A company is considering a $10,000 project that will last 5 years.

* Annual after tax cash flows are expected to be $3,000
* Target debt/equity ratio is 0.4
* Cost of equity is 12%
* Cost of debt is 6%
* Tax rate 34%

What is the project's net present value (NPV)?

A)
+$1,460.
B)
-$1,460.
C)
$+1,245

Click for Answer and Explanation

First, calculate the weights for debt and equity

wd + we = 1

we = 1 − wd

wd / we = 0.40

wd = 0.40