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Acme Corp has a target debt/equity ratio of 0.30. It was $300 million in bonds outstanding with a yield of 6% and 50 million shares

Acme Corp has a target debt/equity ratio of 0.30. It was $300 million in bonds outstanding with a yield of 6% and 50 million shares of stock outstanding with a current market price of $20 per share. The companys beta is 1.18 and the risk-free rate of interest is 4% with a market risk premium of 6%. The firm has a tax rate of 25%. The company is looking to raise $200 million to build a second factory. The new factory will increase output substantially. The table below shows the anticipated cash flows generated from the new factory including a salvage value in year 5. What is the NPV of this project?

Year Cash Flow ($mill)
0 -200
1 35
2 45
3 55
4 65
5 95
$40.68 million
$19.54 million
$16.54 million
$45.87 million

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