National foods is considering producing a new gelatin dessert, Tasty, of which management believes consumers will by $15,000 units each year for 3 years. The price of tasty will be $2.00 per unit at t=0 and increases at 7% per year. New equipment to produce tasty will cost $45,000 with no salvage value, while land will be bought at t=0 for $100,000 and sold at t=3 for $100,000. Nation expects production cost to be $12,000 each year. In addition, overheads and sales expenditures are expected to be $5,000 in the first year and then are expect to increase at 5% per year. The firm faces a 40% income tax rate and uses straight-line deprecation. The firm’s stock price is $25 per share with 16 million shares outstanding. Its beta equity is 1.18. It also has 220 million debt outstanding. The only publicly traded bond it has is a two-year, $10,000 bond with semi-annual coupons of 5.6% and a price of $9779. The risk free rate is 3% and market-risk premium is 6%. All cash flows occur at year’s end. The firm has other profitable ongoing operations
A. Give a table of cash flows with one column for each years end
B. What is the firms weighted average cost of capital
C. What is the NPV of the project calculated using the weighted average cost of capital.