McCann Catching, Inc. has 2.00 million shares of stock outstanding. The stock currently sells for $12.80...

McCann Catching, Inc. has 2.00 million shares of stock outstanding. The stock currently sells for $12.80 per share. The firm’s debt is publicly traded and was recently quoted at 88.00% of face value. It has a total face value of $14.00 million, and it is currently priced to yield 10.00%. The risk free rate is 4.00% and the market risk premium is 8.00%. You’ve estimated that the firm has a beta of 1.30. The corporate tax rate is 39.00%. The firm is considering a $48.08 million expansion of their production facility. The project has the same risk as the firm overall and will earn $11.00 million per year for 8.00 years.

What is the NPV of the expansion? (answer in terms of millions, so 1,000,000 would be 1.0000)

Expert Solution

The following is the Excel Worksheet of the calculation of NPV of Expansion:-

Here,

Cash Flow = $11 Million per year

r = 11.70%

Initial investment = $48.08 Million

The following is the formula sheet of above Excel Worksheet for better understanding:-

NPV of Expansion = $7.141586 Million

jeff jeffy answered 2 years ago

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