5 :D Comprehensive Problem You've been hired fresh off your MBA program as a financial consultant to the Mayo Clinic. (MC), a new, now for-profit publicly traded firm that is the market leader in kidney dialysis systems (KDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of KDSs. This will be a five year project. MBA as a financial consultant to the Mayo Clinic. (MC), a new, now for-profit publicly traded firm that is the market leader in kidney dialysis systems (KDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of KDSs. This will be a five year project. Debt: 25,000 of 6.5 percent coupon bonds outstanding, 20 years to maturity, selling for 96 percent of par: the bonds have a $1,000 par value each and make semiannual payments Common Stock: 400,000 shares outstanding, selling for $89 per share; the beta is 1.20 Preferred Stock: 35,000 shares of 6.5 percent preferred stock outstanding, selling for $99 per share; the preferred have a $100 par value each. Market: 12 percent expected market rate; 5.20 percent risk-free rate. Mayo's tax rate is 34 percent. The project requires $825,000 in initial net working capital investment to get operational and will be recovered in the final year of operation The manufacturing plant has an eight-year life, and Mayo uses straight-line depreciation. At the end of the project (i.e., the end of year 5), the plant can be scrapped for $1.25 million. The company will incur $2,100,000 in annual fixed costs. The plan is to manufacture 11,000 KDSs per year and sell them at $10,000 per machine, the variable production costs are $9,300 per KDS. Mayo's president wants you to throw all your calculations, all your assumptions, and everything else into a report for the chief financial officer: all she wants to know is what the KDS project's NPV is. 5 :D Comprehensive Problem You've been hired fresh off your MBA program as a financial consultant to the Mayo Clinic. (MC), a new, now for-profit publicly traded firm that is the market leader in kidney dialysis systems (KDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of KDSs. This will be a five year project. MBA as a financial consultant to the Mayo Clinic. (MC), a new, now for-profit publicly traded firm that is the market leader in kidney dialysis systems (KDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of KDSs. This will be a five year project. Debt: 25,000 of 6.5 percent coupon bonds outstanding, 20 years to maturity, selling for 96 percent of par: the bonds have a $1,000 par value each and make semiannual payments Common Stock: 400,000 shares outstanding, selling for $89 per share; the beta is 1.20 Preferred Stock: 35,000 shares of 6.5 percent preferred stock outstanding, selling for $99 per share; the preferred have a $100 par value each. Market: 12 percent expected market rate; 5.20 percent risk-free rate. Mayo's tax rate is 34 percent. The project requires $825,000 in initial net working capital investment to get operational and will be recovered in the final year of operation The manufacturing plant has an eight-year life, and Mayo uses straight-line depreciation. At the end of the project (i.e., the end of year 5), the plant can be scrapped for $1.25 million. The company will incur $2,100,000 in annual fixed costs. The plan is to manufacture 11,000 KDSs per year and sell them at $10,000 per machine, the variable production costs are $9,300 per KDS. Mayo's president wants you to throw all your calculations, all your assumptions, and everything else into a report for the chief financial officer: all she wants to know is what the KDS project's NPV is