Question
Boom.com has to value a project that will run for 4 years. The company has already spent $30 million on the experimental testing of the
Boom.com has to value a project that will run for 4 years. The company has already spent $30 million on the experimental testing of the product. It is expected that the project will generate sales of $250 million per year. The costs associated with this project will be $150 million per year. In addition, the company will need to make investment into its net working capital, with initial investment of $58 million (made in year 0), then an investment of $14 million/year for the next three years (years 1-3). The total investment in NWC will be recovered in the last year of the project's life. The equipment necessary for the project will cost $280 million and will be depreciated in a straight line manner to zero value over four years starting from year 1. The Firm has some debt and pays an annual interest of $20 million. Boom.com has a marginal tax rate of 20% and an average tax rate of 15%.
- Calculate the Unlevered Cash Flows from a project in years 0 though 4.
- What is the NPV of the project if the cost of capital is 10%?
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