Foss Inc is planning to develop a powerful new server for Internet activities. It will cost $5 million to buy the equipment necessary to manufacture the server, and $1 million of net working capital will be required for start-up. The servers will sell for $16 per unit, and managers believe that variable costs would amount to $11 per unit. Managers also believe that in the first year they will sell 500,000 units and unit sales will increase by 4% per year. With sales volume increasing, the firm plans to increase net working capital for the project by 1% per year to support sales. The project’s fixed costs will be about $700,000 per year. The server project will have a life of 6 years. The equipment will be depreciated over a 7-year period using MACRS rates. The estimated market value of the equipment at the end of the project’s 6-year life is $250,000. Harris Inc’s federal-plus-state tax rate is 40%. In addition, the firm has a debt-equity ratio of 60%. The cost of equity is 13.50% and the after-tax cost of debt is 7.50%. The firm does not issue preferred stock. The project will be funded by issuing new bonds and new shares of stock. Harris Inc believes its flotation costs for its stock is 8.50% and the flotation costs for its bond is 2.50% of the amount issued.,,I need to find NPV
Regent Papers is a library of common essays on high school, college, undergraduate and postgraduate topics. We have collected top papers from various institution, students and professors. The papers are based on common essay topics in all subjects.