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You are a consultant who was hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line
You are a consultant who was hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line is $ million. The product will generate free cash flow of $ the first year, and this free cash flow is expected to grow at a rate of per year. Markum has an equity cost of capital of a debt cost of capital of and a tax rate of Markum maintains a debtequity ratio of
a What is Markums WACC?
b What is the NPV of the new product line using WACC?
c How much debt will Markum initially take on as a result of launching this product line?
d How much of the product lines value is attributable to the present value of interest tax shields?
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