Assume the risk premium is 6% and the risk-free rate is 3%. Say that Texas Instruments is looking to invest in a new semiconductor manufacturing facility located in Canada. The facility has a $20 million dollar upfront cost, with a CCA rate of 0.10, and is not expected to have a salvage value. The facility will employ 80 workers with an average annual salary starting at $75,000 per worker per year in year 1. The facility is expected to be in service for 5 years. Assume the firm's WACC is 45%, and it faces an effective tax rate of 0.30. The firm anticipates revenues from the facility's production to be $15 million per year. The firm has projected an immediate increase of S1 million in accounts receivable, and a $500,000 increase in inventory at the end of year 1. Both accounts receivable and inventory will return to 0 at the end of the facility's service life. Assume the firm is currently financed with 30% debt and 70% equity. The firm's current (levered) beta is 0.90. The project is financed with 50% debt and 50% equity. Texas instruments can borrow at a rate of 4%. The project's debt will be repaid in equal annual principal instalments. i) Calculate the NPV of this project using the APV method. i) Calculate the NPV of this project using the FTE method. Assume the levered cost of equity remains the same for the entire project. Assume the risk premium is 6% and the risk-free rate is 3%. Say that Texas Instruments is looking to invest in a new semiconductor manufacturing facility located in Canada. The facility has a $20 million dollar upfront cost, with a CCA rate of 0.10, and is not expected to have a salvage value. The facility will employ 80 workers with an average annual salary starting at $75,000 per worker per year in year 1. The facility is expected to be in service for 5 years. Assume the firm's WACC is 45%, and it faces an effective tax rate of 0.30. The firm anticipates revenues from the facility's production to be $15 million per year. The firm has projected an immediate increase of S1 million in accounts receivable, and a $500,000 increase in inventory at the end of year 1. Both accounts receivable and inventory will return to 0 at the end of the facility's service life. Assume the firm is currently financed with 30% debt and 70% equity. The firm's current (levered) beta is 0.90. The project is financed with 50% debt and 50% equity. Texas instruments can borrow at a rate of 4%. The project's debt will be repaid in equal annual principal instalments. i) Calculate the NPV of this project using the APV method. i) Calculate the NPV of this project using the FTE method. Assume the levered cost of equity remains the same for the entire project
