Problem: Sunny Corp. is looking into building a project that has the following characteristics:
- It is a new area of business for Sunny Corp.
- Upfront cost is $1,000,000
- $100,000 of revenue for fifteen years comes from the project
- A $1,250,000 loan is available and it has a 5% interest rate. The loan will be paid off in ten years, in one lump sum
Required:
1. Determine the net present value (NPV) of Sunny Corp.'s potential project, using the weighted average cost of capital (WACC) of that company.