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Holmes Manufacturing is considering a new project that costs 570.000 and wil increase sales by 275.000 per yer. Variable costs will be 40% of sales. The new machine will be fully deprecated, using straight line depreciation at the end of 5 years. Management thinks the machine wil have a value of $15.000 at the end of its 5-year operating He, and intends you the equipment at that time. The project will requte net operating working capital of $150.000, but lts is expected to be recovered at the end of the project's 5-year ifo. Holmes marginal tax rate is 25% The company plow to fund the prooct with 60% debt and 40% equily. Holmes has confirmed with a londer that it can borrow the cash need for the project at a rate of 8%. Holmes stock has a bota of 1.3. The risk free rate is 0.65% and the expected rate of the market is 7.8% a. What is the YIM on the bonds and the WACC for this projecte b. What is the Free cashflow generated by this projecte Reminder this is a 5 year project so please show how much free cash flow is generate for each year lo tots c. What is the after tax salvage value of the machinery d. What is the expected terminal cash flow from this project. e. What is the NPV / IRR / MIRR and payback for this projects Holmes Manufacturing is considering a new project that costs $750,000 and will increase sales by 275,000 per year. Variable costs will be 40% of sales. The new machine will be fully depreciated, using straight line depreciation, at the end of 5 years. Management thinks the machine will have a value of $35,000 at the end of its 5-year operating life, and intends sell the equipment at that time. The project will require net operating working capital of $150,000, but its is expected to be recovered at the end of the project's 5-year life. Holmes' marginal tax rate is 25%. The company plans to fund the proejct with 60% debt and 40% equity. Holmes has confirmed with a lender that it can borrow the cash need for the project at a rate of 5%. Holmes' stock has a beta of 1.3. The risk free rate is 0.65% and the expected rate of the market is 7.5% a. What is the YTM on the bonds and the WACC for this projecte b. What is the Free cashflow generated by this projecte Reminder this is a 5 year project so please show how much free cash flow is generate for each year To to 15 c. What is the after tax salvage value of the machinary? d. What is the expected terminal cash flow from this project. e. What is the NPV / IRR/MIRR and payback for this project f. Would you accept or reject this projecte Please explain your answer. Holmes Manufacturing is considering a new project that costs $750,000 and will increase sales by 275,000 per year. Variable costs will be 40% of sales. The new machine wil be fully depreciated, using straight line depreciation at the end of 5 years. Management thinks the machine will have a value of $35.000 at the end of its 5-year operating life, and intends sell the equipment at that time. The project will require net operating working capital of $150,000, but its is expected to be recovered at the end of the project's 5-year life. Holmes marginal tax rate is 25%. The company plans to fund the proejct with 60% debt and 40% equity. Holmes has confirmed with a lender that it can borrow the cash need for the project at a rate of 5% Holmes' stock has a beta of 1.3. The risk free rate is 0.65 and the expected rate of the market is 7.5% a. What is the YTM on the bonds and the WACO for this project? b. What is the Free cashflow generated by this projecte Reminder this is a 5 year project so please show how much free cash flow is generate for each year To to 15 c. What is the after tax salvage value of the machinary d. What is the expected terminal cash flow from this project. e. What is the NPV / IRR/MIRR and payback for this projecte f. Would you accept or reject this projecte Please explain your
