Provide additional operating profit to the firm

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Reference no: EM131872454

The Smith Company is evaluating an expansion project that will provide additional operating profit to the firm over the next five years. Additional EBITDA of $300,000 is expected at the end of year one. This amount is expected to grow by 4% per year for the four years after that. The project will require an initial investment of $1.2 million. This initial investment will be depreciated over the five years of the project using straight line depreciation of $240,000 per year and a zero estimated salvage value. Smith’s corporate tax rate is 30%.

a) What is the cost of capital required to produce a breakeven NPV = 0?

Reference no: EM131872454

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