Using Sangria's WACC to Value a Project
Sangria's enologists have proposed investing $12.5 million in the construction of a perpetual crushing machine, which (conveniently for us) never depreciates and generates a perpetual stream of earnings and cash flow of $1.731 million per year pre-tax.
The project is average risk of the overall company. Sangria will maintain the same capital structure for this project. Sangria pays taxes at the marginal rate of 35%.
Question 1: Should Sangria take this project? please provide work to help teach me how to arrive at this conclusion