You are looking at replacing your Widget producing machine for $8,500,000. This will last for 9 year

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You are looking at replacing your Widget producing machine for $8,500,000. This will last for 9 year at which point it could be salvaged for $3,200,000. The old machine could be sold today for $3,000,000 and could be salvaged for $750,000 in 9 years. The quantity of widgets produced will be 10,000 units per year. The variable costs for producing each widget will be $49 and the annual fixed costs for production will be $300,000. The project will require you to incur an increase in net working capital of $150,000 which you can reclaim at the end.

The machine is in the 25% CCA bracket, and the tax rate is 35%. Debt A is in the form of 15 year bonds with annual compounding. The bonds have a 7% coupon rate and are priced at $955.86 with a face value of $1,000. Debt B is in the form of 10 year zero coupon bonds with annual compounding and a face value of $1,000. These bonds are currently selling for $452.61. Your company is financed by two kinds of equity and two kinds of debt. The debt to equity ratio is 1.3.

The value of equity A is twice that of equity B. The value of debt A is 80% of that of debt B. The correlation between the returns on Equity A and the market is 0.75 and the variance of the market returns is 0.001348 while the variance of the returns on equity A is 0.004054. The market risk premium is 8% and the risk free rate is 2.5%. Equity B is expected to pay a dividend of $3.33 one year from now. The growth rate in dividends is 2.5% and the stock is priced at $37. The floatation costs on class A equity are 6%, the floatation costs on class B equity are 5.5%, the floatation costs on class A debt are 4% and the floatation costs on class B debt are 3.5%.

What is the minimum price you should sell the widgets.