Due Today Mesta K K Distributors Have A Capital Structure Consisting Of 45 Ordinary Equity 25 Debt And 30 Preferred 1 (41.96 KiB) Viewed 29 times
Due Today Mesta K K Distributors Have A Capital Structure Consisting Of 45 Ordinary Equity 25 Debt And 30 Preferred 2 (13.7 KiB) Viewed 29 times
Due Today mesta, K&K Distributors have a capital structure consisting of 45% ordinary equity, 25% debt and 30% preferred stock issued at 12%. The cost of ordinary equity is estimated at 20% and the debt charges interest at 10% The corporate tax rate applicable for K&K is 3096. Calculate the weighted average cost of capital (3 marks) Blindfold Technologies Inc (BTT) is considering whether to introduce a new line of hand scanners that can be used to copy material and then download it into a computer. These scanners are expected to sell for un average price of $100 cach, and the company analysts performing the analysis expect that the firm can sell 100.000 units per year at this price for a period of five years, after which time they expect demand for the product to end as a result of a more advanced technology. In addition, the firm's management expects that variable costs will be $20 per unit, and fixed costs, not including depreciation, are forecast to be $1,250,000 per year. To manufacture this product, BTI will need to buy a computerized production machine for $10 million that has an expected life of five years and no residual or salvage value. In addition, the firm expects it will have to invest an additional $450,000 in working capital to support the new business. Other pertinent information concerning the business venture is as follows: Initial cost of the machine $10,000,000 Expected life 5 years Salvage value of the machine SO 550.000 a question Working-capital requirement $450,000 Cash fixed costs- excluding depreciation $1.250,000 per year Variable cost per unit $22.50 Required rate of return or cost of capital 10% Tax rate 20% a. Calculate the project's NPV. b. Determine the sensitivity of the project's NPV to a 10 percent decrease in the number of units sold e. Determine the sensitivity of the project's NPV to a 10 percent decrease in the cost per unit. d. Determine the sensitivity of the project's NPV to a 10 percent increase in the variable cost per unit.
c. Determine the sensitivity of the project's NPV to a 10 percent increase in the fixed operating costs
Join a community of subject matter experts. Register for FREE to view solutions, replies, and use search function. Request answer by replying!