You$$re the CFO of the tech company, BubblePop. Your CMO $($Chief Marketing Officer$)$ is

proposing a new product called APPKiller that will be sold online for $$10$ per unit. The CMO

expects sales of $100,000,110,000,120,000,90,000$ and $70,000$ units over the products $5$ year

life. COGS is $20\%$ of sales and operating expenses are estimated at $$350,000$ per year. The

company$$s tax rate is $30\%.$

The initial investment in the project is as follows.

$$ $$1,000,000$ for fixed equipment machinery

$$ $$200,000$ in initial raw materials

The machinery is depreciated over $8$ years straight$-$line $($$$125,000$ per year$).$

At the end of $5$ years, the product is expected to become obsolete. The machinery will be sold

off for $$600,000$ at that time. Raw materials will be sold off netting the company the $$200,000$

back that they had originally invested.

FYI, the company has already spent $$75$k on an overpriced consultant last year analyzing this

deal. $($I heard he was a college professor in RI$).$

Oh$,$ and about their WACC......

$$ The company$$s stock is trading for $$20$ per share. There are $50,000$ shares outstanding.

Company beta is $2\mathrm{.}0.$ The market risk premium is $6\%$ and the risk free rate of return is

$3\%.$

$$ Corporate debt matures in $2020$ and is trading at $90\%$ on $800$ bonds with a par value of

$$1,000.$ The coupon rate is $10\%.$ The bonds pay coupons semi$-$annually $(2$x per year$).$

$$ The company has a small amount of Preferred stock. $2,000$ shares trading at $$90.$ Par

value is $$100$ and annual income on the Preferred stock is $9\mathrm{.}5\%.$

Using NPV$,$ should the company invest in the APPKiller project? You'll see that you'll need to create a cash flow statement first. I've included a partial template $.$ Feel free to use it or create your own.