Question
Problem: Suppose ABC firm is considering an investment that would extend the life of one of its facilities for 5 years. The project would require
Problem:
Suppose ABC firm is considering an investment that would extend the life of one of its facilities for 5 years. The project would require upfront costs of $8M plus $(42)M investment in equipment. The equipment will be obsolete in (5) years and will be depreciated via straight-line over that period (Assume that the equipment can't be sold). During the next 5 years, ABC expects annual sales of (53)M per year from this facility. Material costs and operating expenses are expected to total (30)M and (1.8)M respectively, per year. ABC expects no net working capital requirements for the project, and it pays a tax rate of (33)%. ABC has (73)% of Equity and the remaining is in Debt. If the Cost of Equity and Debt are (11)% and 6% respectively, should they take the project?
StudentID | WACC(%) | FCF at 0(Million) | FCF at 1 (Million) | FCF at 2 (Million) | FCF at 3 (Million) | FCFat 4 (Million) | FCF at 5 (Million) | NPV (Million) |
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