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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
Your corporation is considering investing in a new product line. The annual revenues sales for the new product line are expected to be
$ with variable costs equal to of these sales. In addition annual fixed costs associated with this new product line are
expected to be $ The old equipment currently has no market value. The new equipment cost $ The new equipment
will be depreciated to zero using straightline depreciation for the threeyear life of the project. At the end of the project the equipment is
expected to have a salvage value of $ An increase in net working capital of $ is also required for the life of the
project. The corporation has a beta of a tax rate of and a target capital structure consisting of equity and
debt. Treasury securities have a yield of and the expected return on the market is In addition, the company
currently has outstanding bonds that have a yield to maturity of
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, becomes
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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