Question: Please read the question below. Thank you! & A firm is considering a five-year expansion project to take advantage of a higher dem the product.

Please read the question below. Thank you!

& A firm is considering a five-year expansion project to take advantage of a higher dem the product. The project requires an initial investment in fixed assets of 58,060,009, which will be depreciated straight-line to zero over the five-year project life. The expected operating cash flow (OCF) for each year over the five-year life of the project is provided below. Year Expected operating cash flow (OCF) UIAWN - $3,000.000 $5,000.000 $4,000,000 $4.000.000 $3,000,000 "Defined as net income + depreciation expense The firm expects to have a before-tax salvage value of $2,000,000 at the end of the project It also needs an initial net working capital investment of $1,000,000. The entire net workin capital investment will be recouped at the end of the project. The tax rate is 40 percent. The company's capital structure consists of 30 percent debt and 70 percent equity. The has a before-tax cost of debt (i.e., yield to maturity) of 7 percent per year and a levered e beta of 1.30. The annual risk-free rate and market risk premium are 5 percent and 6 per respectively. Assume that the project has the same capital structure and the same risk firm overall. Find the net present value (NPV) of the project
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
