d$.$ Capital Budgeting Analysis

U$=40$ c$\mathrm{.}1=10\mathrm{.}96\%$ use your company's expected return as the cost of equity capital $($that is the required expected return on the stock in the market from c$.$l$)$ as the required return $($or discount rate$)$ to evaluate the following capital budgeting proposal for your company:

A proposal to spend $$2\mathrm{.}1$ billion to construct production operations in an existing empty building $($owned by your company along with the land$)$ is being contemplated to produce a new product $($the existing building has been depreciated to a value of $$0,$ but the land has a current book value of $$35$ million; the land together with the existing empty building could be sold for $$35$ million today$).$ The $$2\mathrm{.}1$ billion factory investment is expected to last $25$ years $($but can be completely depreciated immediately for tax purposes$),$ and it along with the land is expected to be sold for $$200$ million at the end of the $25-$year useful life. The factory is expected to produce $110,000+U$ units per year that are forecast to be sold for a price of $$29,900$ each. Variable costs $($production labor, raw materials, marketing, distribution, etc.$)$ are predicted to be $$26,300$ per unit. Fixed costs $($administration$,$ maintenance, repairs, utilities, insurance, real estate taxes, etc.$)$ are expected to be $$76+U$ million per year. The tax rate is $21\%.$ The project will require $$89$ million in inventory $($raw materials and finished products$)$ as well as $$62+U$ million in receivables $($credit for customers$).$ An extra $$10+U$ million in cash $($i$.$e$.,$ precautionary bank deposits and short$-$term marketable securities held as liquidity reserves$)$ is required as a safety stock to provide financial flexibility $($that enables avoiding running out of cash in case of temporary declines in operating cash flows$).$ Suppliers $($companies which sell the parts and raw materials that are used in the production of the $110,000+U$ units produced by the factory$)$ are expected to provide short$-$term trade credit that is expected to sum to $$98$ million in accounts payable while short$-$term accrual financing of $$46$ million is supplied by the employees $($who don't get paid until the end of the month$).$

Compute the NPV based on the above initial forecasts

Compute the IRR

Indicate the change in shareholder wealth $($i$.$e$.,$ the increase or decrease in the company's equity market capitalization$)$ that would occur as a result of undertaking this project

Determine if the project should be undertaken

Compute the Payback Period $($and reevaluate the project if the company requires a Payback Period of $7$ years$)$

Compute equivalent annual cash flow $($EAC$)$ of the project evaluated in $d.$I and compare that to another project involving the manufacture of a mutually exclusive alternative product that has