Question
NEED HELP WITH HW(step by step so i can understand how to do it): You are the CFO of a large company, and you must
NEED HELP WITH HW(step by step so i can understand how to do it):
You are the CFO of a large company, and you must evaluate the following investment opportunity.The project's initial capex is $100 million (no additional capex needed).Assume a straight-line, 10 year depreciation schedule.Assume that the project will produce revenues of $30m, $70m, $100m over the next 3 years.Operating expenses (excluding depreciation) will be 50% of revenues.Net operating working capital will be 10% of revenue.Interest expense is 10% of revenue. The firm's average tax rate is 20%, and the marginal tax rate is 30%.You expect to sell your PP&E at the end of year 3 for $60 million.Assume all of the operating cash flows occur in the middle of the year.Assume that you recoup your net operating working capital 6 months after the sale of your PP&E, and the WACC is 15%.What is the NPV of this opportunity?
A)-$2.532 millionB)$4.079 millionC)$1.080 million
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