The Papillon Corporation is considering launching a new project, and it would like to dothe math to figure out if it is worth it.The Papillon Corporation has no loans, and currently its cost of equity is 10.9 %.The project would require an immediate investment of $11.46 million to buy productionequipment. The equipment will depreciate according to the straight-line method, andits 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 $3.23million 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 2.8 % per year. (Use this rate todiscount the risk-free cash flows from this project, such as the annual "depreciationtax shields" (HINT: see Ch.6 PowerPoint!).)The Papillon Corporation faces a 22 % income tax rate.First, find the project's estimated unlevered cash flows, and then calculate the project'sunlevered net present value. (Do not round intermediate calculations and enter youranswer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,1,234,567.89)Net present value

The money a company produces from its primary operations before deducting costs like loan repayment…

Answered: unlevered net present value. (Do not…

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)

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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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…
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