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In: Finance
You've been asked to do a capital budgeting evaluation of a new factory. The initial cost...
You've been asked to do a capital budgeting evaluation of a new
factory. The initial cost to build the factory is $100 million, the
factory will be run for 10 years and has an estimated salvage value
equal to zero. Accounting tells you to use straight-line
depreciation over 10-years to a book value of zero. Sales from the
factory are expected to be 50 million each year for the next 10
years (t=1 to 10) and costs (other than depreciation but inclusive
of COGS, SGA, etc.) are 55% of revenues. Inventories and A/P will
immediately rise by $15 million and $7.5 million respectively and
remain at these levels until returning to back to original levels
at the end of the project (t=10). A/R will rise to $10 million
after the 1st year (i.e., at t=1) and remain at that level until
falling back to original levels at the end of the project’s life
(t=10). If the WACC for the project is 8%, the marginal tax rate is
20%, answer the following questions:
What is the FCFF at t=1
What is the FCFF at t=2
What is the FCFF at t=10
What is the NPV of the project?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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