In: Finance
Q18).
The Rare Find Co. has the following information:
Debt outstanding: $280 million
Before-tax cost of debt: 5%
Market cap: $650 million
Cost of common stock: 11%
Tax rate: 21%
Rare Find is evaluating a project with the following information:
Over the next five years EBIT will equal: 12 million, 13 million, 14 million, 15 million, 16 million respectively.
An investment of $5 million is required in net working capital at the beginning of the project, which will be recovered at the end of the project.
The cost of the equipment will be $30 million depreciated using straight-line to zero over the project's life, with no salvage value.
The project requires an additional 1% risk premium above the firms WACC.
Calculate the WACC for the firm. (Enter percentages as decimals and round to 4 decimals)
Calculate the operating cash flows for the first year of the project.
Calculate the net present value for the project. (Round to 2 decimals)