Answer:
$9,837
Explanation:
For computing the net present value first we have to determine the weighted cost of capital which is shown below:
WACC = [(Weight of common stock × cost of common stock) + (Weight of debt × cost of debt) × [after tax cost of debt)] ÷ Total weight
= [(1.0 × 0.127) + (0.45 × 0.048)] ÷ 1.45
= 10.25%
=10.25%(approx)
Now the net present value is
= Present value of all year cash inflows - Initial Investment
= {[$65,000 ÷ (1.1025)] + [$74,000 ÷ (1.1025)^2]} - $110,000
= $58,957 + $60,880 - $110,000
= $9,837
We simply applied the above formula for computing the net present value.