What is the NPV of the new product line

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Question - You are a consultant who was hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line is $10 million. The product will generate free cash flow of $750,000 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 11.3%, a debt cost of capital of 4.33%, and a tax rate of 25%. Markum maintains a debt-equity ratio of 0.40. What is the NPV of the new product line (including any tax shields from leverage)?

a) None of the answers is correct

b) $4.13 million

c) $5 million

d) $5.13 million

e) $4 million

Reference no: EM133019754

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