Question
Amazon wants to make and sell its own smartphones. It will cost $280 million initially to build the factory over the course of 12 months,
Amazon wants to make and sell its own smartphones. It will cost $280 million initially to build the factory over the course of 12 months, which will be sold for $80 million 10 years after production starts. The factory will be depreciated linearly to $0 over 10 years. Amazon already owns the land on which the factory will be built. The land could currently be sold for $10 million (after taxes) and was purchased for $2 million eight years ago. After completion of the factory at the end of year 1, Amazon expects earnings before interest and taxes (EBIT) of $38 million each year for 10 years (in years 2 to 11). The company also has to add inventory (components) worth $15 million just before operation starts at the end of the first year. Amazon's marginal tax rate is 28% and the appropriate cost of capital for this project is 6%.
Part 5 What is the cash flow from assets in year 2 (in $ million)?
Part 6 What is the after-tax salvage value of the factory in year 11 (in $ millions)
Part 7 What is the cash flow from assets in year 11 (in $ million)?
Part 8 What is the NPV of this project (in $ million)
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