Question
Zipcart Inc. forecasts sales of $350,000 per year in the foreseeable future for a manufacturing project. Costs for this project are expected to be $250,000
Zipcart Inc. forecasts sales of $350,000 per year in the foreseeable future for a manufacturing project. Costs for this project are expected to be $250,000 per year. The initial investment is estimated to be $500,000. Assume the firm borrows $265,152 for the initial investment and finances the rest of the initial investment by issuing new common stock. The firm has a corporate tax rate of 30%. The cost of unlevered equity for the firm is 12%. The cost of debt for Zipcart is currently 10%. The target capital structure for Zipcart is 40% debt and 60% common equity.
a) Calculate the unlevered cash flow for Zipcart. Then use this cash flow to calculate APV.
b) Use the FTE approach to calculate the NPV of this project.
c) Use the WACC approach to calculate the NPV of this project.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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