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AAA Health, Inc. ( NYSE: A 3 H ) is evaluating a new product, a vitamin C / fish oil blended energy drink. As an
AAA Health, Inc. NYSE: AH is evaluating a new product, a vitamin Cfish oil blended energy drink. As an assistant director of the capital budgeting division of AAA Health, you are responsible for the evaluation of the proposed project. You collected the following information about the project and the cost of capital. You should make an acceptreject recommendation to the director of your division based on your evaluation.
Information about the Proposed Project
Initial investment and depreciation: The new drink would be produced in an unused building owned by AAA Health which is fully depreciated. The new equipment required for the project would cost $ plus an additional $ for shipping and installation. With the new project, inventories would rise by $ and accounts payable would increase by $ All of these costs would be incurred at The machinery will be depreciated under the Modified Accelerated Cost Recovery System MACRS as year property. The depreciation rates are at at at and at
Project life and salvage value: AAA Health expects to run the project for four years. The cash inflows are assumed to begin one year after the project is undertaken, or at and to continue to At the end of the project's life.
QUESTION:
What is the WACC?
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