Essex Chemical Company is considering an expansion into a new product line that is more risky than

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Essex Chemical Company is considering an expansion into a new product line that is more risky than its existing product mix. The new product line requires an investment, NINV, of $10 million and is expected to generate annual net cash inflows of $2.0 million over a 10-year estimated economic life. Essex Chemical’s weighted is 12 percent, and the new product line requires an estimated risk-adjusted of 17 percent, based upon the security market line and betas for comparable companies engaged in the contemplated new line of business.
a. What is the project’s NPV, using the company’s weighted
b. What is the project’s NPV, using the risk-adjusted Should Essex Chemical adopt the project?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...

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