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A firm is considering a new product for their kitchen line. The kitchen product requires...

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Accounting

A firm is considering a new product for their kitchen line. The kitchen product requires a machine that costs $120M. The machine will be depreciated on a straight-line basis to a zero-book value over 4 years. Sales are expected to be $300M next year, and operating expenses (excluding depreciation expense) are $265M next year. Both sales and operating expenses are expected to increase by 10% each year through year 4. The tax rate is 25%.
a. Estimate the free cash flows for the project.
b. The firm has two main lines: kitchen products and fitness equipment. The firm has an overall beta of 1.0. The risk-free rate is 4% and the market risk premium is 6%. The kitchen products unit has a beta of .6, while the fitness unit has a beta of 1.5. Use the capital asset pricing model to estimate the required return.

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