Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is $2.75 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $50,000 feasibility study to analyze the decision to buy the XC-750, resulting in the following estimates:

Marketing: Once the XC-750 is operating next year, the extra capacity is expected to generate $10 million per year in additional sales, which will continue for the ten-year life of the machine.

Operations: The disruption caused by the installation will decrease sales by $5 million this year. As with Billinghams existing products, the cost of goods for the products produced by the XC-750 is expected to be 70% of their sale price. The increased production will also require increased inventory on hand of $1 million during the life of the project. The increased production will require additional inventory of $1M, to be added in year 0 and depleted in year 10.

Human Resources: The expansion will require additional sales and administrative personnel at a cost of $2 million per year.

Accounting: The XC-750 will be depreciated via the straight-line method in years 110. Receivables are expected to be 15% of revenues and payables to be 10% of the cost of goods sold. Billinghams marginal corporate tax rate is 35%.

Cost of Capital: Billingham Packaging believes that the new project has the same cost of capital as its current assets. Currently, Billingham Packaging is all-equity financed. Its equity beta is 1.4. The risk-free rate is 3%, and the market risk premium is 5%.

Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is S2.75 million. Unfortunately installing this machine will take several months and will partially disrupt production he firm has just completed $50,000 feasibility study o analyze the decision to buy the XC-750, resulting in the following estimates: Marketing: Once the XC-750 is operating next year, the extra capacity is expected to generate $10 million per year in additional sules, which will continue for the ten-vear life of the machine Operations: The disruption caused by the installation will decrease sales by $5 million this year. As with Billingham's existing products, the cost of goods for the products produced by the XC-750 is expected to be 70% of their sale price. The increased production will also require increased inventory on hand of $1 million during the life of the project. The incrcased production will require additional inventory of SIM, to be added in year 0 and depleted in year 10, Human Resources: The expansion will require additional sales and administrative personnel at a cost of S2 million per year . A counting. The XC-750 will be depreciated via the straight-lme method in years 1-10. Receivables are expected to be l 5% of revenues and payables to be 10% of the cost of goods sold. Billingham's marginal corporate tax rate is 35%. C st C a af: Billingham Packaging believes that the new project has the same cost of capital as its current assets. Currently, Billingham Packaging is all equity financed. Its equity beta is 1.4. The risk-free rate is 3%, and the market risk premium is 5%. a. Determine the incremental earnings from the purchase of the XC-750. b. Determine the free cash flow from the purchase of the XC-750. c. Compute the NPV of the expansion project Tax rate Cost of goods as a % of sales First year sales value 35.00 70.00 0,000.00 eur cur ur ear 8 ear 9 ear 10 Sales revenues Cost of goods sold S, G& A expenses Depreciation EBIT Taxes at 35% a. Unlevered Net Income Depreciation Capital Expe nditures Net Working Capital Calculation Receivables at 15% Payables at 10% Inventory Net Working Capital Increase in NWC b. Free cash flow (FCF c. Cost of capital PV (FCF NPV Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is S2.75 million. Unfortunately installing this machine will take several months and will partially disrupt production he firm has just completed $50,000 feasibility study o analyze the decision to buy the XC-750, resulting in the following estimates: Marketing: Once the XC-750 is operating next year, the extra capacity is expected to generate $10 million per year in additional sules, which will continue for the ten-vear life of the machine Operations: The disruption caused by the installation will decrease sales by $5 million this year. As with Billingham's existing products, the cost of goods for the products produced by the XC-750 is expected to be 70% of their sale price. The increased production will also require increased inventory on hand of $1 million during the life of the project. The incrcased production will require additional inventory of SIM, to be added in year 0 and depleted in year 10, Human Resources: The expansion will require additional sales and administrative personnel at a cost of S2 million per year . A counting. The XC-750 will be depreciated via the straight-lme method in years 1-10. Receivables are expected to be l 5% of revenues and payables to be 10% of the cost of goods sold. Billingham's marginal corporate tax rate is 35%. C st C a af: Billingham Packaging believes that the new project has the same cost of capital as its current assets. Currently, Billingham Packaging is all equity financed. Its equity beta is 1.4. The risk-free rate is 3%, and the market risk premium is 5%. a. Determine the incremental earnings from the purchase of the XC-750. b. Determine the free cash flow from the purchase of the XC-750. c. Compute the NPV of the expansion project Tax rate Cost of goods as a % of sales First year sales value 35.00 70.00 0,000.00 eur cur ur ear 8 ear 9 ear 10 Sales revenues Cost of goods sold S, G& A expenses Depreciation EBIT Taxes at 35% a. Unlevered Net Income Depreciation Capital Expe nditures Net Working Capital Calculation Receivables at 15% Payables at 10% Inventory Net Working Capital Increase in NWC b. Free cash flow (FCF c. Cost of capital PV (FCF NPV