Answered step by step
Verified Expert Solution
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 $176,500.00 with
Your corporation is considering investing in a new product line. The annual revenues (sales) for the new product line are expected to be $176,500.00 with variable costs equal to 50% of these sales. In addition annual fixed costs associated with this new product line are expected to be $43,655.00 . The old equipment currently has no market value. The new equipment cost $55,504.00 . 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 $37,073.00 . An increase in net working capital of $62,909.00 is also required for the life of the project. The corporation has a beta of 0.879 , a tax rate of 27.76% , and a target capital structure consisting of 62.04% equity and 37.96% debt. Treasury securities have a yield of 1.93% and the expected return on the market is 11.13% . In addition, the company currently has outstanding bonds that have a yield to maturity of 8.36%. |
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? |
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