Question
.Husky Construction Inc.s new project of an office building will cost $700,000 to buy the land today. Construction of the office building will cost $2.1
.Husky Construction Inc.s new project of an office building will cost $700,000 to buy the land today. Construction of the office building will cost $2.1 million; this expense ($2.1 million) will be depreciated straight-line over 30 years to zero salvage value. The $2.1 million construction cost is to be paid today. The pretax value of the land and building in year 30 will be $10 million (The book value of the building construction cost is zero; The book value of the land is still $700,000.) The firm will lease the office building for $500,000 per year; payment is due at the start of the year; occupancy will begin in one year. Maintenance cost is $70,000 per year. The project will require no investment in net working capital.
a. What is the initial cost of the project?
b. What is the after-tax incremental cash flow in year 2?
c. What is the after-tax terminal cash flow in year 30?
d. What is the NPV of the project using WACC methodology?
e. What is the present value of the project using the APV methodology?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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