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2. Fatburger Inc. is a company that operates fast foa_i restaurants and it is considering producing packaged food for sale at grocery stores. me
2. Fatburger Inc. is a company that operates fast foa_i restaurants and it is considering producing packaged food for sale at grocery stores. me initial investment in production facilities to start this venture will be S million, depreciable straight line over 10 years to a salvage value of SIO million. packaged fol business is expected to generate revenues of S 100 million each year for the next 10 years and the EBITDA margin (EBITDNrevenues) is expected be on these revenues. The working capital is expected to be 10% of revenues, with the investment occurring at the start of each period, where needed. The cost of capital for Fatburger is 12% but the cost of capital for other firms in the packaged food business is me marginal tax rate is 40%. a. Estimate the NPV of the investment. (3 points) b. Now assume that you this business to continue in perpetuity, after year 10. Estimate the NPV of the investment today. (2 points) c. Now assume that the packaged food business will increase the after-tax cashflows at the fast restaurants by S 5 million a year for the next 10 years. What value would you attach to this synergy? (I point)
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