Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Can someone help with the question below: Go over Case Study - Dupont for the steps needed to help a company decide on go or

image text in transcribed

image text in transcribed

Can someone help with the question below:

Go over "Case Study - Dupont" for the steps needed to help a company decide on "go" or "no go" before starting big projects. Complete all steps in the case before answering the following question. Make only one change in the Dupont case study in the lecture notes. The company realized that they were too optimistic and overestimated annual sales. So, the company has cut down the project's expected annual sales from $60 million in the lecture note to $46 million.

How much is the Dupont chemical plant's net present value (NPV) in millions?

Suppose DuPont is considering an investment that would extend the life of one of its chemical facilities for 4 years The project would require upfront costs of $6.67 million plus a $24 million investment in equipment The equipment will be obsolete in 4 years and will be depreciated via straight-line over that period During the next four years, however, DuPont expects annual sales of $60 million per year from this facility Material costs and operating expenses are expected to total $25 million and $9 million, respectively, per year DuPont expects no net working capital requirements for the project, and it pays a tax rate of 35% Dupont's 10-year, 7\% annual coupon, $1,000 PAR bonds are currently trading for $1,275.54 Assume DuPont's class A preferred stock has a price of $66.67 and an annual dividend of $3.50. Assume the equity beta of DuPont is 1.37, the yield on ten-year Treasury notes is 3%, and you estimate the market risk premium to be 6%. The current market values of DuPont's common stock, preferred stock, and debt are $30,860 million, $187 million, and $9543 million, respectively \begin{tabular}{|l|l|r|r|r|r|r|} \hline 1 & Year & 0 & 1 & 2 & \multicolumn{1}{|c|}{3} & 4 \\ \hline 2 & Incremental Earnings Forecast (\$million) & & & & & \\ \hline 3 & Sales & & 60.00 & 60.00 & 60.00 & 60.00 \\ \hline 4 & Cost of Goods Sold & & 25.00 & 25.00 & 25.00 & 25.00 \\ \hline 5 & Gross Profit & & 35.00 & 35.00 & 35.00 & 35.00 \\ \hline 6 & Operating Expenses & 6.67 & 9.00 & 9.00 & 9.00 & 9.00 \\ \hline 7 & Depreciation & & 6.00 & 6.00 & 6.00 & 6.00 \\ \hline 8 & EBIT & 6.67 & 20.00 & 20.00 & 20.00 & 20.00 \\ \hline 9 & Income Tax at 35\% & 2.33 & 7.00 & 7.00 & 7.00 & 7.00 \\ \hline 10 & Unlevered Net Income & 4.34 & 13.00 & 13.00 & 13.00 & 13.00 \\ \hline 11 & Incremental Free Cash Flow (\$ million) & & & & & \\ \hline 12 & Plus: Depreciation & & 6.00 & 6.00 & 6.00 & 6.00 \\ \hline 13 & Less: Capital Expenditures & 24.00 & & & & \\ \hline 14 & Less: Increases in NWC & & & & & \\ \hline 15 & Incremental Free Cash Flow & 28.34 & 19.00 & 19.00 & 19.00 & 19.00 \\ \hline \end{tabular}

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

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

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

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

Get Started

Recommended Textbook for

Finance Of International Trade

Authors: Eric Bishop

1st Edition

0750659084, 978-0750659086

More Books

Students also viewed these Finance questions

Question

What is a command prompt?

Answered: 1 week ago

Question

What is the purpose of the application form?

Answered: 1 week ago

Question

What is the general purpose of preliminary screening?

Answered: 1 week ago