The new Designer Jeans was expected to sell for $ 83 per unit and had projected sales of 4100 units in the first year, with a projected (Most-Likely scenario) 21.0 % growth rate per year for subsequent years. A total investment of $ 1,057,000 for new equipment was required. The equipment had fixed maintenance contracts of $ 281,508 per year with a salvage value of $ 148,073 and variable costs were 5 % of revenues. Shantel also needed to consider both the Best-Case and Worst-Case scenarios in the analysis with growth rates of 31.00 % and 2.10 % respectively. The company also has 99000 bonds outstanding, with a current price of $ 999.00. The bonds pay interest semi-annually at a coupon rate of 6.20 %. The bonds have a par value of $1,000 and will mature in 6 years. The average corporate tax rate was 32 %. Management believes the S&P 500 is a reasonable proxy for the market portfolio. Therefore, the cost of equity is calculated using the company's equity beta and the market risk premium based on the S&P 500 annual expected rate of return - Shantel would calculate the monthly expected market return using 5 years of past monthly price data available in the worksheet Marketdata. This would then be multiplied by 12 to estimate the annual expected rate. Shantel remembered that if the expected rate of return for the market was too low, too high, or negative, a forward looking rate of an historical average of about 9.5% would have to be used, as the calculated value for the current 5-year period may not be representative of the future. Shantel would consider a E(Rm) between 8-12% acceptable. Shantel would calculate the market risk premium: E(Rm) - Rf from the previous calculations using the risk-free rate data available in the worksheet Marketdata. Shantel noted that the risk-free rate was on an annual basis.

What is the Marginal Tax Rate ?