The Papillon Corporation is considering launching a new project, and it would like to do the math to figure out if it is worth it. The Papillon Corporation has no loans, and currently its cost of equity is 11.6 %. The project would require an immediate investment of $11.67 million to buy production equipment. The equipment will depreciate according to the straight-line method, and its economic life is 6 years. The Papillon Corporation expects that this 6-year- long project would bring "revenues minus costs of goods sold in the amount of $3.37 million each year. (Use the company's cost of equity to discount their after-tax values.) You also know that the T-Bill, or the risk-free, rate is 3.5 % per year. (Use this rate to discount the risk-free cash flows from this project, such as the annual "depreciation tax shields" (HINT: see Ch.6 PowerPoint!).) The Papillon Corporation faces a 24 % income tax rate. First, find the project's estimated unlevered cash flows, and then calculate the project's unlevered net present value. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Net present value
The Papillon Corporation is considering launching a new project, and it would like to do the math to figure out if it is worth it. The Papillon Corporation has no loans, and currently its cost of equity is 11.6 %. The project would require an immediate investment of $11.67 million to buy production equipment. The equipment will depreciate according to the straight-line method, and its economic life is 6 years. The Papillon Corporation expects that this 6-year- long project would bring "revenues minus costs of goods sold in the amount of $3.37 million each year. (Use the company's cost of equity to discount their after-tax values.) You also know that the T-Bill, or the risk-free, rate is 3.5 % per year. (Use this rate to discount the risk-free cash flows from this project, such as the annual "depreciation tax shields" (HINT: see Ch.6 PowerPoint!).) The Papillon Corporation faces a 24 % income tax rate. First, find the project's estimated unlevered cash flows, and then calculate the project's unlevered net present value. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Net present value
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk
Section: Chapter Questions
Problem 1P: Talbot Industries is considering launching a new product. The new manufacturing equipment will cost...
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