The following investment project is submitted to you: Project: extension of an industrial plant; purchase

Question:

The following investment project is submitted to you:

◦ Project: extension of an industrial plant;
◦ purchase of equipment €20m;
◦ set-up costs €1.5m;
◦ useful life 8 years;
◦ residual value 0;
◦ increase in working capital €2.5m.

The project will result in an increase in EBITDA of €3m per year, over the 8 years during which the new asset is used. The equipment is depreciated over 5 years. The corporate income tax rate is 40%.

(a) Draw up the cash flow schedule for the project, on the basis of straight-line depreciation.

(b) Calculate each of the two cases:
◦ net present value at 10%;
◦ the internal rate of return of the project.

Step by Step Answer:

Related Book For  book-img-for-question

Corporate Finance Theory And Practice

ISBN: 9780470721926

2nd Edition

Authors: Pierre Vernimmen, Pascal Quiry

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