Project Evaluation

Evaluate the following project (FIND NPV and IRR): A. The Investment Project cost: $75 million: This can be depreciated to ZERO using straight line for 2 years (projects life is 2 years). Tax Rate = 25% Revenue is expected at 85 million per year. Costs of goods sold are estimated to be 45% of revenues. Fixed costs are 12 million in both years. This project will have a value of 10 million at the end of the second year. B. The Firm Long-term debt outstanding $35 million The firms bonds carry a face value of $1000 and a coupon rate of 6%, interest is paid semi-annually. Currently 15 year maturity bonds are selling for $875. Number of shares of common stock outstanding is 700,000 Price per share $35 Beta 1.3 Risk Free rate is 3% Expected return on the S+P 500 (the market) is 14%