In: Finance
Your corporation is considering investing in a new product line. The annual revenues (sales) for the new product line are expected to be $132,767.00 with variable costs equal to 50% of these sales. In addition annual fixed costs associated with this new product line are expected to be $68,969.00 . The old equipment currently has no market value. The new equipment cost $51,167.00 . 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 $35,063.00 . An increase in net working capital of $61,730.00 is also required for the life of the project. The corporation has a beta of 1.649 , a tax rate of 25.33% , and a target capital structure consisting of 47.80% equity and 52.20% debt. Treasury securities have a yield of 2.18% and the expected return on the market is 10.10% . In addition, the company currently has outstanding bonds that have a yield to maturity of 4.37%. |
a) What is the total initial cash outflow? (show as negative number - 2.5 Points) |
b) What are the estimated annual operating cash flows? (2.5 points) |
c) What is the terminal cash flow? (2.5 points) |
d) What is the corporations cost of equity? (2.5 points) |
e) What is the WACC? (2.5 points) |
f) What is the NPV for this project? (2.5 points) |