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SCENARIO 1: Jackson Products Inc. spent 4 years researching the need for a new product line and has decided that the market is now ready.

SCENARIO 1: Jackson Products Inc. spent 4 years researching the need for a new product line and has decided that the market is now ready. To begin the line of products, the company will need to invest $3,000,000 in a new building and new equipment. The employee will need to be trained on the new equipment which will cost the company $25,000. The company will not need the old equipment and will be able to sell the pieces for $250,000. It is expected that the new product line will increase revenues by $850,000 as well as operational expenses by $50,000 each year for the next 5 years. The companys cost of capital is 10%. Based on this scenario, answer the following 3 question.

  1. What is the amount of initial investment of Scenario 1?
  1. $3,025,000
  2. $5,025,000
  3. $2,725,000
  4. $2,775,000

  1. What is the NPV of the project presented in Scenario 1?
  1. $2,109,080
  2. $257,640
  3. $496,720
  4. ($2,278,280)
  1. What is the IRR of the project presented in Scenario 1?
  1. Between 13% - 14%
  2. Between 14% - 15%
  3. Between 12% - 13%
  4. Over 17%

  1. A firm has a current capital structure consisting of $500,000 of 12% annual interest debt and 40,000 shares of common stock. The firms tax rate is 40% on ordinary income. The required return (rs) under this capital structure scenario is 9%. If the EBIT is expected to be $300,000, what is the per-share value of the firm?
  1. $41
  2. $42
  3. $40
  4. $39

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