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Your corporation is considering investing in a new product line. The annual revenues (sales) for the new product line are expected to be $225,510.00
Your corporation is considering investing in a new product line. The annual revenues (sales) for the new product line are expected to be $225,510.00 with variable costs equal to 50% of these sales. In addition annual fixed costs associated with this new product line are expected to be $68,542.00. The old equipment currently has no market value. The new equipment cost $69,558.00. The new equipment will be depreciated to zero using straight-line depreciation for the three-year life of the project. At the end of the project the equipment is expected to have a salvage value of $27,474.00. An increase in net working capital of $60,377.00 is also required for the life of the project. The corporation has a beta of 1.090, a tax rate of 31.27%, and a target capital structure consisting of 48.20% equity and 51.80% debt. Treasury securities have a yield of 3.38% and the expected return on the market is 7.90%. In addition, the company currently has outstanding bonds that have a yield to maturity of 4.55%. For answers that are dollar amounts, please round to the nearest two decimal places. For answers that are a percentage, please be sure to enter your answer as a percentage (for example, .1234 becomes 12.34%). A. What is the total initial cash outflow? (show as negative number): $ B. What are the estimated annual operating cash flows? $ C. What is the terminal cash flow? $ D. What is the corporations cost of equity? $ E. What is the WACC? F. What is the NPV for this project? $ %
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