XYZ leather company is considering a project to make high quality backpacks to be marketed to college professors.
They projected 60,000,000.00 annual sales. 20% operating margin in years 1 and 2. With 24% in years 3 and year 4. 500,000 per year in depreciation. 4 year useful life, 30 million capital investment. 3,000,000.00 in working capital. 20% tax rate. 3.5 million dollar salvage value.
XYZ has paid dividends the last few years as follows: 7.00, 7.32, 7.73, and 8.12. The company has a beta of 1.4. We have researched and found the market risk premium to 6.4%. T-bills are offering a 1% return.
The company is comprised of 30% debt. They now have 30,000,000.00 bond issue outstanding paying 12.50 quartly payment. The bonds are selling for 1045.11 and have five years to maturity. They have no other debt.
The company has perferred stock worth 10 million dollars with 500,000 shares outstanding paying 1.75 in dividend.
Compute the NPV for this project.