D 1 2 3 4 Xavier Student Ventures is deciding to launch a new line of action figures. These action figures will feature

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D 1 2 3 4 Xavier Student Ventures Is Deciding To Launch A New Line Of Action Figures These Action Figures Will Feature 1 (152.48 KiB) Viewed 10 times

D 1 2 3 4 Xavier Student Ventures is deciding to launch a new line of action figures. These action figures will feature prominent Xavier Professors such as Professor Brain, Dr. Doom, Dr. P and Dr. O. They plan to sell the action figures for 5 years. The equipment to make the new action figures will cost $450,000 and the accountants say it should be depreciated on a straight-line basis to zero over 5 years. The marketing group thinks sales will be $200,000 per year, fixed costs will be $28,000 and variable costs will be 45% of sales. Xavier pennant sales are expected to drop by $40,000 with pre-tax profit loss of $17,000 They will need to invest $9,000 in working capital at the beginning of the project. They think they will be able to salvage the equipment at the end of the project for $14,000. The coupon rate on the debt is 6.50% and the yield to maturity on the firm's debt is 5.3%. The risk-free rate is 2%. The market risk premium is 6.3%. The stock's beta is 1.3. The Company has $1,400,000 market value of equity and $1,300,000 of debt outstanding. The tax rate is 33%. Fill in the pro forma worksheet and put your answers to the questions below in the highlighted cells. 3 Pro Forma (7 pts) 9 Year O Sales 1 Variable Costs 2 Fixed Costs 3 Depreciation 4 Cannibalization 5 EBIT 5 Taxes 7 3 OCF Equipment O Salvage Value Working Capital 2 3 Total CF 4 5 What is the Firm's cost of debt? 7 What is the firm's cost of equity? 3 9 What is the Weighted Average Cost of Capital? D 2 3 What is the After Tax Salvage Value? 5 (What is the NPV? 3 9 O Should the Firm Take the Project? Why? 1 0 1 2 3 4 5