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Question
Nielson Motors has a debt-equity ratio of 1.8, an equity beta of 1.6, and a debt beta of 0.20. It is currently evaluating the following projects, none of which would change Nielson's volatility.| Project | 1 | 2 | 3 | 4 | 5 |
| Investment | 100 | 75 | 120 | 60 | 80 |
| NPV | 23 | 12 | 18 | 15 | 14 |
(All amounts are in $millions.)
The total debt overhang associated with accepting project 4, is closest to:
A) $0 million
B) $13.5 million
C) $15.0 million
D) $38.6 million
Answer
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Related questions
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Money that has been or will be paid regardless of the decision whether or not to proceed with the project is: A) cannibalization. B) considered as part of the initial investment in the project. C) an opportunity cost. D) a sunk cost.