Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your corporation is considering investing in a new product line. The annual revenues ( sales ) for the new product line are expected to be

Your corporation is considering investing in a new product line. The annual revenues (sales) for the new product line are expected to be $268,332.00 with variable costs equal to 50% of these sales. In addition annual fixed costs associated with this new product line are expected to be $42,301.00. The old equipment currently has no market value. The new equipment cost $61,737.00. 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 $12,427.00. An increase in net working capital of $61,298.00 is also required for the life of the project. The corporation has a beta of 1.078, a tax rate of 25.56%, and a target capital structure consisting of 47.66% equity and 52.34% debt. Treasury securities have a yield of 2.81% and the expected return on the market is 9.70%. In addition, the company currently has outstanding bonds that have a yield to maturity of 4.50%.
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? $
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_step_2

Step: 3

blur-text-image_step3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Management Of Islamic Finance

Authors: M. Kabir Hassan, Mamunur Rashid

1st Edition

ISBN: 1787564045, 978-1787564046

More Books

Students also viewed these Finance questions

Question

What is TensorFlow.js? What can it do?

Answered: 1 week ago