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Details below: Capital Investment for the product = $ 10,000,000 Investment will last 5 years. At the end of 5 years the equipment will be
Details below:
Capital Investment for the product = $ 10,000,000
Investment will last 5 years.
At the end of 5 years the equipment will be sold for $ 20,000
The company will sell 100,000 units first year growing at 10% per year.
Price of the product is $ 30.00 per unit
Costs:
Fixed cost is = $ 200,000 per year
Variable cost = $ 8.00 per unit
Tax Rate is 25%
Bonds outstanding are 20,000 selling at $ 925 per bond for a yield to maturity of 7%
Stock:
900,000 shares outstanding
Price is $ 20.00 per share
Risk free rate = 3%
Market risk premium = 4%
Beta = 1.2
1. Should the company make the investment? (Yes or No)
2. What is the Weight average cost of capital?
3. What is the new products NPV
4. What is the breakeven point?
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