What are the estimated annual operating cash flows

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Your corporation is considering investing in a new product line. The annual revenues (sales) for the new product line are expected to be $235,990.00 with variable costs equal to 50% of these sales. In addition annual fixed costs associated with this new product line are expected to be $67,829.00 . The old equipment currently has no market value. The new equipment cost $57,941.00 . The new equipment will be depreciated to zero using straight-line depreciation for the three-year life of the project. At the end of the project the equipment is expected to have a salvage value of $25,366.00 . An increase in net working capital of $62,088.00 is also required for the life of the project. The corporation has a beta of 1.635 , a tax rate of 36.06% , and a target capital structure consisting of 51.95% equity and 48.05% debt. Treasury securities have a yield of 1.41% and the expected return on the market is 12.17% . In addition, the company currently has outstanding bonds that have a yield to maturity of 5.21%.

a) What is the total initial cash outflow? (show as negative number)

b) What are the estimated annual operating cash flows?

c) What is the terminal cash flow?

d) What is the corporations cost of equity?

e) What is the WACC?

f) What is the NPV for this project?

Reference no: EM132041896

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