Question

Your company is deciding whether to buy a new production equipment worth $25 mil and has employed a consultant to evaluate the decision. Your boss is unhappy with the following report:

	1	2	...	9	10
Revenue	$30,000	$30,000		$30,000	$30,000
COGS	$18,000	$18,000		$18,000	$18,000
Gross Profit	$12,000	$12,000		$12,000	$12,000
SG&A	$2,000	$2,000		$2,000	$2,000
Depreciation	$2,500	$2,500		$2,500	$2,500
Operating Income	$7,500	$7,500		$7,500	$7,500
Income Tax	$2,625	$2,625		$2,625	$2,625
Net Income	$4,875	$$,875		$4,875	$4,875

You note that the consultant didn’t factor in that the projects require an upfront working capital injection of $10 million, which will be fully recovered in year 10. The consultant has attributed the $2 million SG&A expense, out of which $1 million is sunk cost (it has to be used regardless of the project decision).
Given the information, calculate free cash flows for years 0 through 10. If the interest rate is 10%, what’s the value of the project?

Answer 1

ANSWER IS IN MILLIONS AND ALSO THOUSANDS OF DOLLARS

ANSWER : 18.166 MILLION = 18165.58 THOUSAND OF DOLLARS