Markum initially take on as result of launching product line

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Reference no: EM131835029

You are a consultant who has been hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line is $9 million The product will generate free cash flow of $0.78 million the first year, and this free cash flow is expected to grow at a rate of 4% per year. Markum has an equity cost of capital of 1 1.5%, a debt cost of capital of 6.39%, and a tax rate of 32%. Markum maintains a debt-equity ratio of 0.60

a. What is the NPV of the new product line (including any tax shields from leverage)?

b. How much debt will Markum initially take on as a result of launching this product line?

c. How much of the product line's value is attributable to the present value of interest tax shields?

Reference no: EM131835029

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