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 $(44)M investment in equipment. The equipment will be obsolete in (7) 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 (5+9+50)M per year from this facility. Material costs and operating expenses are expected to total (9+40-9-3)M and (9+1+0.8)M, respectively, per year. ABC expects no net working capital requirements for the project, and it pays a tax rate of (30+1)%. ABC has (70+5)% of Equity and the remaining is in Debt. If the Cost of Equity and Debt are (5+8)% and 6% respectively, should they take the project? MUST ANSWER THE QUESTIONS IN THE EXCEL DOCUMENT. The answers to be provided are: a) WACC (in percentage, thus 3.8% must be entered as 3.8); b) Incremental FCF at 0; c) Incremental FCF from year 1 to year 5; d) NPV. All dollars answers must be submitted in DOLLARS, thus 4.56M must be entered as 4560000. Round to the second decimal in each case. DO NOT PUT ANY UNITS IN YOUR ANSWERS
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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