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Your firm is considering building a $590 million plant to manufacture HDTV circuitry. You expect operating profits (EBITDA) of $136 million per year for the
Your firm is considering building a $590 million plant to manufacture HDTV circuitry. You expect operating profits (EBITDA) of $136 million per year for the next ten years. The plant will be depreciated on a straight-lne basis over ten years (assuming no salvage value Tor tax purposes). Alter ten years, the plant wil lave a salvage value or 296 million (which, since t D y I cash project requires $50 million in working capital at the sta project shuts down. The corporate tax which will be recovered in year ten when flows occur at the end of the year. a. If the risk-free rate is 4.2%, the expected return of the market is 11.1%, and the asset beta for the consumer electronics industry is 1.75, what is the NPV of the project? b. Suppose that you can finance $472 million of the cost of the plant using ten-year, 9.2% coupon bonds sold at par. This amount is incremental new debt associated specifically with this project and will not alter other aspects f the firm's capital structure. What is the value of the project, including the tax shield of the debt
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