You are a consultant who has been hired to evaluate a newproduct line for Markum Enterprises. The upfront investmentrequired to launch the product line is $7 million. The product willgenerate free cash flow of $0.77 million the first year, andthis free cash flow is expected to grow at a rate of 4% per year.Markum has an equity cost of capital of 11.9%, a debt cost ofcapital of 6.45%, and a tax rate of 40%. Markum maintainsa debt-equity ratio of 0.60.
a. What is the NPV of the new product line (including anytax shields from leverage)?
b. How much debt will Markum initially take on as a result oflaunching this product line?
c. How much of the product line's value is attributable tothe present value of interest tax shields?
You are a consultant who has been hired to evaluate a new product line for Markum Enterprises. The upfront investment re
-
answerhappygod
- Site Admin
- Posts: 899603
- Joined: Mon Aug 02, 2021 8:13 am