Question
Hillsdale Media is a specialty kitchen cabinet maker that produces cabinets to order. It is a mature business that earned EBITDA of $900,000 on revenues
Hillsdale Media is a specialty kitchen cabinet maker that produces cabinets to order. It is a mature business that earned EBITDA of $900,000 on revenues of $5 million in the most recent year and is expected to continue to generate these figures in perpetuity. The company is considering carrying some of its most popular models in inventory, with an eye on increasing sales and operating profits. It has collected the following information To carry inventory, the company will have to invest $2.25 million in a storage facility, which will be depreciated straight line over ten years down to a salvage value of $250,000 With the inventory, the company expects its annual revenues to increase to $7.5 million and its overall EBITDA margin (EBITDA as % of sales) to increase to 20% For the next decade, the inventory will be maintained at 10% of total revenues, with the investment made at the start of each year. The inventory will be sold for book value at the end of ten years. The cost of capital for the company is 10% and it faces a 40% tax rate a. Estimate the NPV of the project (carrying inventory) assuming at ten-year life for the investment (4 points) B. Estimate the breakeven EBITDA margin for the company, for the investment to have a zero NPV, if you now assumetha that the project lasts forever. Part A has been answered in Chegg but need to know how to do part B in excel.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started