Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

pls.ASAP Thanq You are a newly graduated management consultant Looking for an opportunity and recently Come up with a Job opportunity to work with Incas

image text in transcribed

pls.ASAP Thanq

You are a newly graduated management consultant Looking for an opportunity and recently Come up with a Job opportunity to work with Incas Company. The company is looking at setting up a manufacturing plant overseas to produce a new line of Products. This will be a five-year project. The company bought some land three years ago for $6.2 million in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. If the land were sold today, the net proceeds would be $6.67 million after taxes. In five years, the land will be worth $7.547 million after taxes. The company wants to build its new manufacturing plant on this land, the plant will cost $14.68 million to build. The following market data on Incas securities are current: Debt: 81,400 7.5 percent coupon bonds outstanding, 26 years to maturity, selling for 96.3 percent of par, the bonds have a $1,000 par value each and make semi annual payments. Common stock 1,720,000 shares outstanding, selling for $96.70 per share the beta is 1.64. Preferred stock: 86,000 shares of 7.3 percent preferred stock outstanding, selling for $94.3 per share. Market: 5.9 percent expected market risk premium; 7.2 percent risk-free rate. Incas tax rate is 21 percent. The project requires $965,000 in initial net working capital investment to get operational. a. Calculate the project's Time 0 cash flow, taking into account all side effects. Assume that any NWC raised does not require floatation costs. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) b. The new project is somewhat riskier than a typical project for Incas, primarily because the plant is being located overseas. Management has told you to use an adjustment factor of +2 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating Incas project. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. The manufacturing plant has an eight-year tax life, and Incas uses straight-line depreciation. At the end of the project (i.e., the end of Year 5), the plant can be scrapped for $1.67 million. What is the after tax salvage value of this manufacturing plant? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, eg., 1,234,567.) d. The company will incur $2,570,000 in annual fixed costs. The plan is to manufacture 12,700 Units per year and sell them at $10,100 per machine, the variable production costs are $9,300 per Unit. What is the annual operating cash flow, OCF, from this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) e. Calculate the project's net present value. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) f. Calculate the project's internal rate of return. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e g., 32. 16.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions