Reference no: EM133059875
Best Company is considering bringing out a new product. Details below:
Capital Investment for the product = $ 10,000,000
The investment will last 5 years.
At the end of 5 years, the equipment will be sold for $ 20,000
The company will sell 100,000 units first year growing at 10% per year.
The price of the product is $ 30.00 per unit
Costs:
Fixed cost is = $ 200,000 per year
Variable cost = $ 8.00 per unit
Tax Rate is 25%
Bonds outstanding are 20,000 selling at $ 925 per bond for a yield to maturity of 7%
Stock:
900,000 shares outstanding
Price is $ 20.00 per share
Risk free rate = 3%
Market risk premium = 4%
Beta = 1.2
- Should the company make the investment? (Yes or No)
- What is the weighted average cost of capital?
- What is the new product's NPV
- What is the breakeven point?
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