Flash memory was founded in late 1990s. The small firm specialized in designing and manufacturing solid state drives and memory modules. Given the facts that products had short life cycles, and technologies changed frequently in the market, the competition was intensive in the industry and product profit margin was low. In order to stay ahead of competition, Flash memory needed to highly invest in R&D to create cutting-edge products so that customer’s wants and needs could be met.
Currently, Flash memory enjoy the good reputation of its products and continue to focus on R&D which allows the company to maintain its competitive advantage. An investment opportunity in a new product line that has the potential to be extremely…show more content… is unlevered beta or beta of assets. Therefore, by using the formula:
And also assume the beta of debt is zero, the beta of Flash Memory equals 1.84
The cost of equity equals 14.74%.
WACC equals 10.51%.
We have calculated the WACC to be 10.51%. Based on this WACC, the NPV of the new project is estimated to be $3,322,000. Because this project has a positive NPV and provides growth opportunities for the company overall, we recommend to proceed it.