Question
Your corporation is considering investing in a new product line. The annual revenues for the new product line are expected to be $215266 with variable
Your corporation is considering investing in a new product line. The annual revenues for the new product line are expected to be $215266 with variable costs equal to 50% of these sales. In addition, annual fixed costs associated with this new product line are expected to be $57165.00. The old equipment currently has no market value. The new equipment cost $82696.00. 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 $33,138.00. An increase in net working capital of $55713.00 is also required for the life of the project. The corporation has a beta of 0.99, a tax rate of 26.55%, and a target capital structure consisting of 57.61% equity and 42.39% debt. Treasury securities have a yield of 2.51%, and the expected return on the market is 8.46%. In addition, the company currently has outstanding bonds that have a yield to maturity of 5.87%. What is the NPV for this project?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started