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FIN - Mustard Patch Doll Company




Question;Mustard Patch Doll Company needs to purchase;new plastic moulding machines to meet the demand for its product. The cost of;the equipment is $100,000. It is estimated that the firm will generate, after;tax, operating cash flow (OCF) of $22,000 per year for the next seven years.;The firm is financed with 40% debt and 60% equity, both based on market values.;The firm?s cost of equity is 16% and its pre-tax cost of debt is 8%. The;flotation costs of debt and equity are 2% and 8%, respectively. Assume the;firm?s tax rate is 34% and ignore the effects of CCA depreciation. (10 marks);a. What is the firm?s tax adjusted WACC?;b. Ignoring flotation costs, what is the NPV of;the proposed project?;c. What is the weighted average flotation cost;fA, for the firm?;d. What is the dollar flotation cost of the;proposed financing?;e. After considering flotation costs, what is the;NPV of the proposed project?


Paper#49890 | Written in 18-Jul-2015

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