Question

In: Finance

A firm is considering a new project. The project costs 100M in yr 0, it will...

A firm is considering a new project. The project costs 100M in yr 0, it will generate FCF over the next 3 years and become obsolete afterward.

Debt to equity ratio :0.4

pretax WACC:8.86%

WACC:8.26%

Here are the expected FCF's

Year 0: -100M

Year 1: 50M

Year 2: 100M

Year 3: 70M

1) what is the unlevered value of the project?

2) what is the levered value of the project?

What is the total npv of the project including the npv of financing?

Solutions

Expert Solution

Pre tax
1 WACC=8.86%
Discount Factor NPV
Year 0 -100 Discount Factor formula
Year 1 50 0.92 45.93 1 / (1 x (1 + WACC) ^ YearNumber)
Year 2 100 0.84 84.38
Year 3 70 0.78 54.26
184.58
Unlevered value of the project
= NPV of the FCF (without considering. Financial obligations)
-
Cost of the project
= 184.58 -100
84.58
Discount Factor formula
2 Post tax 1 / (1 x (1 + WACC) ^ YearNumber)
WACC=8.26%
Discount Factor NPV (FCF) Interest NPV(Interest) Net NPV (FCF - Interest)
Year 0 -100
Year 1 50 0.92 46.19 8.26 7.63 38.56
Year 2 100 0.85 85.32 8.26 7.05 78.27
Year 3 70 0.79 55.17 8.26 6.51 48.66
186.68 21.19 165.49
Levered value of the project
= NPV of the FCF (after considering. Financial obligations + tax)
-
Cost of the project
= 165.49-100
65.49
Total NPV of the project including the NPV of Financing is 165.49Mn

jeff jeffy answered 1 year ago
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