Microsoft Word - 2009T2_Fins1613_FinalExam.doc

Express Shopping Centres Inc. is considering expanding into the vacant land next door. This would require an outlay of $7.38 million. It is forecast that the additional complex will generate earnings before tax of $960,000 next year and that these earnings would grow at a rate of 4% per annum into the foreseeable future. Express pays company tax at a rate of 30% and has a real cost of capital of 8.5%. The Reserve Bank of Australia has forecast inflation to be 2.5% over the foreseeable future. What is the NPV of the expansion project?

1. a) $1,937,157.71
2. b) $2,220,000.00
3. c) $3,650,482.00
4. d) $5,930,225.30
5. e) $7,553,333.33