You are a consultant who has been hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line is

$15

million. The product will generate free cash flow of

$0.72

million the first year, and this free cash flow is expected to grow at a rate of

4%

per year. Markum has an equity cost of capital of

11.8%,

a debt cost of capital of

8.33%,

and a tax rate of

40%.

Markum maintains a debt-equity ratio of

0.70.

a. What is the NPV of the new product line (including any tax shields from leverage)?

b. How much debt will Markum initially take on as a result of launching this product line?

c. How much of the product line's value is attributable to the present value of interest tax shields?

Question content area bottom

Part 1

a. What is the NPV of the new product line (including any tax shields from leverage)?

The NPV of the new product line is

$enter your response here

million.(Round to two decimal places.)