You are a consultant who was hired to evaluate a new product line for Sun Enterprises....

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You are a consultant who was hired to evaluate a new product line for Sun Enterprises. The upfront investment required to launch the product line is $7 million. The product will generate a free cash flow of $950,000 in the first year, and this free cash flow is expected to grow at a rate of 4% per year. Sun Enterprises' unlevered cost of capital is 13%. The company's debt is risk-free, the risk-free rate is 4%, and the tax rate is 30%. Sun Enterprises maintains a debt-to-equity ratio of 40%. The risk of the new product line is the same as the other businesses of Sun Enterprises. a) Compute the company's WACC. (5 marks) b) What is the NPV of the new product line (including any tax shields from leverage)? (5 marks) c) What is the NPV of the new product line (excluding any tax shields from leverage)? (5 marks) d) How much of the value of the new product line is attributed to the present value of interest tax shields? (5 marks) You are a consultant who was hired to evaluate a new product line for Sun Enterprises. The upfront investment required to launch the product line is $7 million. The product will generate a free cash flow of $950,000 in the first year, and this free cash flow is expected to grow at a rate of 4% per year. Sun Enterprises' unlevered cost of capital is 13%. The company's debt is risk-free, the risk-free rate is 4%, and the tax rate is 30%. Sun Enterprises maintains a debt-to-equity ratio of 40%. The risk of the new product line is the same as the other businesses of Sun Enterprises. a) Compute the company's WACC. (5 marks) b) What is the NPV of the new product line (including any tax shields from leverage)? (5 marks) c) What is the NPV of the new product line (excluding any tax shields from leverage)? (5 marks) d) How much of the value of the new product line is attributed to the present value of interest tax shields? (5 marks)