Riverrocks realizes that it will have to raise the financing for the acquisition of raft adventures by issuing new debt and equity. the acquisition project has a net present value of $ 36.09 million. the firm estimates that the direct issuing costs will come to $ 7.37 million. how should it account for these costs in evaluating the project? should riverrocks proceed with the project?

Question

Reynaldo Kane

Business

8 June, 16:43

Riverrocks realizes that it will have to raise the financing for the acquisition of raft adventures by issuing new debt and equity. the acquisition project has a net present value of $ 36.09 million. the firm estimates that the direct issuing costs will come to $ 7.37 million. how should it account for these costs in evaluating the project? should riverrocks proceed with the project?

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Answers (1)

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Trinity Brown · Answer 1

Answer and Explanation:

Given:

Net present value = $36.09 million

Direct issue cost = $7.37 million

Note: We know that direct issue cost will be called as acquisition cost and deducted from NPV

Current NPV = Net present value - Direct issue cost

Current NPV = $36.09 million - $7.37 million

Current NPV = $28.72 million

Riverrock's NPV is positive so, he proceed with the project.