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Can you show calculations of how to get the answer above. Van Houtte is considering upgrading its central coffee roaster. The firm's current machine was
Can you show calculations of how to get the answer above.
Van Houtte is considering upgrading its central coffee roaster. The firm's current machine was purchased 4 years prior for $125 mln. It can be resold today for $50 mln or salvaged in 10 years for $15 mln. The new coffee roaster would cost $150 mln. It has a useful life of 10 years and a salvage value of $25 mln. Both roasters have a 20% CCA rate. By replacing the roaster, Van Houtte will be able to reduce inventory levels by $15 mln. In addition, the firm estimates that they will be able to increase volume while reducing costs. Overall, management estimates that they will be able to increase cash inflows by $5 mln annually while reducing cash outflows by $6 mln annually. Assume Van Houtte's marginal tax rate is 25% and its WACC is 6%. 16. What would be the PVFCF for Van Houtte's proposed asset replacement outlined above? a. $81.0 mln b. $66.0 mln c. $45.8 mln d. $38.2 mln Van Houtte is considering upgrading its central coffee roaster. The firm's current machine was purchased 4 years prior for $125 mln. It can be resold today for $50 mln or salvaged in 10 years for $15 mln. The new coffee roaster would cost $150 mln. It has a useful life of 10 years and a salvage value of $25 mln. Both roasters have a 20% CCA rate. By replacing the roaster, Van Houtte will be able to reduce inventory levels by $15 mln. In addition, the firm estimates that they will be able to increase volume while reducing costs. Overall, management estimates that they will be able to increase cash inflows by $5 mln annually while reducing cash outflows by $6 mln annually. Assume Van Houtte's marginal tax rate is 25% and its WACC is 6%. 16. What would be the PVFCF for Van Houtte's proposed asset replacement outlined above? a. $81.0 mln b. $66.0 mln c. $45.8 mln d. $38.2 mlnStep by Step Solution
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