a. The expansion will require the purchase of machinery costing $40,000,000

b. The firm has spent $250,000 to train workers to use the new machinery.

c. The sales from this project will be $15 million per year, of which 10% comes from lost sales of the TXI sedan. No additional operating expenses or costs are incurred.

d. The company uses straight-line depreciation. The project has an economic life of 20 years and the machinery will a salvage value of $4,000,000.

e. Because of the project, the company will need additional working capital of $1,500,000 which can be liquidated at the end of 20 years.

f. HM’s stock price is $34.50. They just paid a dividend of $3 and the market consensus is for constant 5% dividend growth forever.

g. HM’s bonds sell for $970. They pay semi-annually, have 7 years to maturity, a coupon rate of 4% and par value of $1,000.

h. HM’s marginal tax rate is 40%.

i. Their target capital structure is 70% equity and 30% debt.

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