A firm is looking to invest is new machinery to improve the efficiency of production. The machinery will cost $34,560,000. There are expected to be shipping and installation costs of $4,560,000. There is an expectation that additional raw materials will be needed when the new machinery is purchased in order to optimize the production process. The increase in raw materials will be considered an increase in net working capital of $3,500,000. The old machinery can be sold for $1,333,000 but currently has a salvage value of zero. The company's marginal tax rate is 40%. Analysts have projected that overall sales will increase $14,500,000 in each of the next three years. Incremental variable and fixed costs are estimated to be $2,350,000. The new machinery will be depreciated using the straight line method and have a salvage value of $2.000.000 at the end of the third year. It is expected that the machinery can be sold for $1,500,000 at the end of the three year period. The company has allocated some internal equity to be used to finance the purchase of the machinery. The company has a beta of 1.4. Returns for the entire market are expected to be 13.5% while the risk-free-rate is expected to be 3%. Further, the company will issue a number of 5-year bonds that have $1,000 face value with an annual coupon rate of 5%. Bonds that are similar to those that will be issued are currently priced $920. Flotation costs are expected to be $30 per bond. The company has a current capital structure of 75% debt and 25% common equity. What is the initial outlay (i.e., cash flow in year () of the project. What are the differential cash flows in years 1 through 3 for the project? What is the terminal cash flow in year 3? (Excludingthe vear 3 operational cash flowl: What is the company's before-tax cost of debt (as a percentage): What is the company's weighted average cost of capital (as a percentage)? What is the NPV of this projecte A firm is looking to invest is new machinery to improve the efficiency of production. The machinery will cost $34,560,000. There are expected to be shipping and installation costs of $4,560,000. There is an expectation that additional raw materials will be needed when the new machinery is purchased in order to optimize the production process. The increase in raw materials will be considered an increase in net working capital of $3,500,000. The old machinery can be sold for $1,333,000 but currently has a salvage value of zero. The company's marginal tax rate is 40%. Analysts have projected that overall sales will increase $14,500,000 in each of the next three years. Incremental variable and fixed costs are estimated to be $2,350,000. The new machinery will be depreciated using the straight line method and have a salvage value of $2.000.000 at the end of the third year. It is expected that the machinery can be sold for $1,500,000 at the end of the three year period. The company has allocated some internal equity to be used to finance the purchase of the machinery. The company has a beta of 1.4. Returns for the entire market are expected to be 13.5% while the risk-free-rate is expected to be 3%. Further, the company will issue a number of 5-year bonds that have $1,000 face value with an annual coupon rate of 5%. Bonds that are similar to those that will be issued are currently priced $920. Flotation costs are expected to be $30 per bond. The company has a current capital structure of 75% debt and 25% common equity. What is the initial outlay (i.e., cash flow in year () of the project. What are the differential cash flows in years 1 through 3 for the project? What is the terminal cash flow in year 3? (Excludingthe vear 3 operational cash flowl: What is the company's before-tax cost of debt (as a percentage): What is the company's weighted average cost of capital (as a percentage)? What is the NPV of this projecte
