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Please answer all questions and explain. Thank you You were hired to evaluate SnapX's expansion project which is expected to produce $3.5 million of revenue
Please answer all questions and explain. Thank you
You were hired to evaluate SnapX's expansion project which is expected to produce $3.5 million of revenue per year for 10 years. Cash expenses will be $1 million, and depreciation expenses will be $750,000 per year. The project also requires a (one-time) expenditure of $150,000 for working capital to start (in year 0 ), and it will be recovered in the last year of the project (year 10). In addition, the firm's common stock has a beta of 1.2. The risk-free rate is 2.5 percent and the market risk premium is 10 percent. The before-tax cost of debt is 5 percent, and the tax rate is 27 percent. Their capital structure consists of 65 percent debt and 35 percent cammon equity. 1. What is the yearly free cash flow on the project? Show all your work. 2. What is the firm's WACC? Show all your work. 3. Should the firm accept this project if it requires an initial investment of 15 million, Why or Why not? Explain. Explain using the appropriate equations. Show all your work. 4. What is the MIRR of the project? 5. Suppose that the market risk premium decreases to 6%. Show how the expansion decision is affected by this change, if any. Show all your work. Explain. Show all vour work. Explain all your answers using the appropriate equations (not JustStep by Step Solution
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