1 answer

16. River Rocks realizes that it will have to raise the financing for the acquisition of...

Question:

16. River Rocks realizes that it will have to raise the financing for the acquisition of Raft Adventures by issuing new debt
16. River Rocks 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 $36.35 million. The firm estimates that the direct issuing costs will come to $6.87 million. How should it account for these costs in evaluating the project? Should River Rocks proceed with the project? How should it account for these costs in evaluating the project? (Select the best choice below.) O A. The direct issuing costs should be included as a direct cost of the acquisition, i.e., NPV=$36.35 million - $6.87 million = $29.48 million O B. The direct issuing costs should be included as a direct cost of the acquisition, i.e., NPV= $36.35 million + $6.87 million = $43.22 million OC. The direct issuing costs should not be included as a direct cost of the acquisition because it is a sunk cost. O D. The direct issuing costs should be included as a direct cost and should be amortized over the life of the project. Should River Rocks go ahead with the project? (Select from the drop-down menu.) River Rocks (1) go ahead with the project. (1) O O should should not

Answers

The answer is

A.should be included as direct cost

NPV = 36.35 million – 6.87 million

= 29.48 million

Should go ahead

Since NPV is positive

.

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