Question
In: Finance
18.3 You are a consultant who has been hired to evaluate a new product line for...
18.3
You are a consultant who has been hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line is $12 million. The product will generate free cash flow of $0.70 million the first year, and this free cash flow is expected to grow at a rate of 3% per year. Markum has an equity cost of capital of 11.4% , a debt cost of capital of 8.63% , and a tax rate of 32%. Markum maintains a debt-equity ratio of 0.40.
a. What is the NPV of the new product line (including any tax shields from leverage)?
b. How much debt will Markum initially take on as a result of launching this product line?
c. How much of the product line's value is attributable to the present value of interest tax shields?
Solutions
Expert Solution
WHEN I SOLVED THIS SUM EARLIER, ALL FIGURES WERE IN 2
DECIMALS ONLY. BUT NO INTERMEDIATE ROUNDING WAS DONE. SAME PROCESS
IS FOLLOWED HERE. NEED ANY CHANGE, LET ME KNOW. THANK
YOU
jeff jeffy answered 1 year agoRelated Solutions
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