Q. The parent corporation wants to value one of its division in order to assess different business strategies, including potential divestiture. Assume all forecasts are nominal, that the forecast period is ten years and that the division will go on operating in perpetuity. The appropriate nominal cost of capital for this division is 10%. The division has $150 M book value of Property, Plant and Equipment (PPE) in place. Division sales last year were $400 M and are forecast to grow at 8% per year during the forecast period. The products of the division are very profitable: the gross profit margin (exclusive of depreciation) is forecast to be stable at 12% of sales. To support the above sales growth, the company has to spend $.10 in additional net working capital per dollar of incremental sales each year and must spend $.50 in new capital expenditures (for maintenance of existing plant and equipment and for new plant and equipment) per dollar of incremental sales each year. Suppose that the firm takes 10% of the beginning of the year level of book value of PPE as their Depreciation Expense for tax purposes each year. The corporate tax rate is 40%.

Calculate the NPV and IRR of the project.

(please give elaborated answer) (8 marks)