Question content area top Part 1 You are a consultant who has been hired to evaluate a
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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 $ million. The product will generate free cash flow of $ million the first year, and this free cash flow is expected to grow at a rate of per year. Markum has an equity cost of capital of a debt cost of capital of and a tax rate of Markum maintains a debtequity ratio of
a What is the NPV of the new product lineincluding 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?
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