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Your company currently manufactures cars. However, as the CEO you have entertained manufacturing ventilators. This will be a five-year project. OCF will be $1,000,000 at
- Your company currently manufactures cars. However, as the CEO you have entertained manufacturing ventilators. This will be a five-year project. OCF will be $1,000,000 at the end of year 1, and shrink by 25% every year. Your current cost of equity is 20% and your cost of debt is 5.5%. Your company is in the 21% tax bracket. Your upfront cost will be $2,100,000. You do not have the capital to currently finance this project so you would need to raise outside money. Your debt/equity ratio is 0.5, the flotation costs to raise equity or debt is 7.5% and 3%, respectively. What is the NPV of this project?
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