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RJR has spent $325 million on developing the ‘Premier’ cigarette. Assume RJR has the same profit margin (NI available to common stock/sales) on this brand as the other brands ($8.52 per 1,000 cigarettes). (Assume 20 cigarettes a pack).* and that the required rate of return is 11%. (Assume this is the required return for the entire firm). If RJR sells the same number of Premiers every year for the next twenty years, how many must be sold each year for this to be a zero-NPV project.Hints:* 1000/20= 500 packs and $.00852 per cigarette* NPV = ∑ CFt/ (1+WACC)t = 0t=0, 20Recall CF equals net income available to common stockholders plus depreciation. You may assume depreciation is 45,500 per year. Ignore taxes. Is this a reasonable number? No additional information is needed, but if you need to make an assumption, do so and clearly state it.
SolutionCost of the project$325,000,000Profit margin on 1000 cigrettes$8.52Profit margin on 1 cigrette$0.00852Number of cigrettes per pack20Required rate of return11%Let the number of…
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