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[2 points] You are the CFO of a large company, and you must evaluate the following investment opportunity. The project's initial capex is $100 million
[2 points] You are the CFO of a large company, and you must evaluate the following investment opportunity. The project's initial capex is $100 million (no additional capex needed). Assume a straight-line, 10 year depreciation schedule. Assume that the project will produce revenues of $30m, $80m,$110m over the next 3 years. Operating expenses (excluding depreciation) will be 50% of revenues. Net operating working capital will be 10% of revenue. Interest expense is 10% of revenue. The firm's average tax rate is 20%, and the marginal tax rate is 30%. You expect to sell your PP\&E at the end of year 3 for $40 million. Assume all of the operating cash flows occur in the middle of the year. Assume that you recoup your net operating working capital 6 months after the sale of your PP\&E, and the WACC is 15%. What is the NPV of this opportunity? A) $6.933 million B) $3.017 million C) $0.685 million
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