ABC Manufacturing is considering an investment in a new product line. The product line will require a significant investment in robotic technology for $150 million dollars. The company’s projected Revenue for next year is $110 million dollars and COGS is $80 million dollars. The investment is expected to increase Revenue by 2.5% and reduce COGS by 5.0% each year for years 2 through 5.The following information is relevant to our Capital Budgeting analysis:• ABC Debt – $35 million dollars• ABC Equity – $100 million dollars• Current YTM on Debt – 11.5%• Current Beta – 1.8• US Treasury Bill Rate – 3.2%• S&P 500 Index Fund Return – 7.8%• ABC Tax Rate – 35%• Straight Line Depreciation is appropriate for this investmentThe CEO has requested a cash flow analysis for this project over a 5 year horizon. In addition the executive team has requested IRR and NPV calculations to assist in deciding the viability of this project.
