a. Wheel Industries is considering a three-year expansion project.
The project requires an initial investment of $1.5 million. The project will use straight-line depreciation method. The project has no salvage value. It is estimated that the project will generate additional revenues of $1.2 million per year and has annual costs of $600,000.
The tax rate is 35 percent. Calculate the cash flows for the project. If the discount rate were 6 percent, calculate the NPV of the project, then offer your thoughts as to whether this is an economically acceptable project to undertake.
b. Clinton Co. h
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b. Clinton Co. has just paid a dividend of $2.50 per share. The dividends are expected to grow at a constant rate of six percent per year forever. If the stock is currently selling for $50 per share, calculate the cost of equity for the firm.