john j. smith & co. is developing a new product.

Project Description:

john j. smith & co. is developing a new product. in order to finance this venture, management has requested you to make recommendations. the current market value (market cap) of smith & co. is $14m. the company has paid 4.5% of the profit margin in dividends each of the past 3 years. there are $2.5m outstanding shares of common stock. smith & co. currently is carrying $4m in long-term debt. the mean cost of capital over the next decade is anticipated to be 7.5%.

the new venture is expected to generate $3.5m in annual revenue for 5 years and then decrease 20% annually for the remaining 5 years. the profit margin is anticipated to be 20% in years 1-3, 25% years 4-6, and decreasing equally each year to 5% by year 10. initial startup costs are projected to be $5m. at the end of year 6, retooling costs are estimated to be $1.5m. smith & co. holds 1.3m shares of its own stock.

consider the above projections and make your recommendations based on the theory of maximizing shareholder wealth (msw) using net present value (npv) and internal rate of return (irr).

i have the attached start to this problem but want to know if it's correct so far and what to do about the msw.

thanks!
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Price Type: Negotiable

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