You are evaluating a project that costs $5.5 million over its 5-year life. Depreciation is straight-line to zero over the life of the project and it has no salvage value. The discount rate of the project is 13%. On the balance sheet last year, your total assets amounts to $940,000 and total liabilities amounts to $100,000. Tax rate: 30%; Retention ratio: 50%;
The following estimates for the base case is projected:
Sales: 11000 units; Price per unit: 750; Variable cost per unit: 585; Fixed cost per year: $560,000
Last year, your firm had $250,000 in sales, $100,000 in variable costs, $50,000 in fixed costs, and $33,333 in depreciation. Your firm has a 38% retention ratio. TC=35% and RD=8%.
Additionally, the balance sheet last year reported $150,000 in assets and $45,000 in liabilities.
How much does the firm pay in dividends?
If the firm wishes to maintain its debt to equity ratio, how much debt should the firm issue?
What is your firm’s sustainable growth rate?