Question: help me solve this question please Question 5: Unlevered WACC You are a consultant who was hired to evaluate a new product line for Markum
Question 5: Unlevered WACC You are a consultant who was hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line is $10 million. The product will generate free cash flow of $750,000 the first year, and this free cash flow is expected to grow at a rate of 4% per year. Markum has an equity cost of capital of 11.3%, a debt cost of capital of 5%, and a tax rate of 35%. Markum maintains a debt-equity ratio (based on market values) of 0.40. a. b. What is the NPV of the new product line (including any tax shields from leverage)? How much debt will Markum initially take on as a result of launching this product line? How much of the product line's value is attributable to the present value of interest tax shields? c
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