Xalta Corp. is on the move. The firm is growing and is looking to move into the top five in market share in smart tablet industry. Xalta is ready to make a big splash, but the firm needs capital to make that splash happen. Working with underwriters, Xalta is ready to launch an initial public offering (IPO). They are also ready to enter the bond market. Xalta Corp’s tax rate is 35% and the interest rate is 4.2%. All bonds will sell at a face value of $1,000. According to the underwriters’ estimates, Xalta stock will open at $23.50, with the market rate = 3.5%, the risk free rate = for 4.2%. Xalta’s projected beta is 3.6. Xalta needs to raise $7,500,000 to fund its expansion project, a project that is expected to produce Xalta’s new smart tablet, the Xalta XLT, the new rival to the iPad Pro and Surface Pro. The project is forecasted to produce revenues of $1,500,000 in year one, $2,750,000 in years two and three, and $1,000,000 in year four, prior to the product being sunset and the production equipment being completely depreciated. The interest (discount) rate is 3.75%.

1. Determine the most appropriate weighted cost of capital (least expensive).

2. Determine the net present value (NPV) for the project.

You must show all your work in the two calculations above.

Write up a summary paragraph to the CEO of Xalta Corp, recommending this project, or not, based on what you calculated above. At the top of your page, please make sure you provide the information as to how you got to your calculations (e.g. what function/calculation did you use - what values were assigned to what components of that calculation/function).

Answer rating: 100% (QA)

Cost of debt interest rate 1tax Cost of debt 421035273 Cost of equity Risk free rate Beta x mark... View the full answer