Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

[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

image text in transcribed [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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions