Question
Sustef corp. is a company that is planning to expand its operations outside of the southeast and into the northwest part of the US starting
Sustef corp. is a company that is planning to expand its operations outside of the southeast and into the northwest part of the US starting january 1, 2023.
This expansion has the same level of risk as the company's current operations. You are Sustef's CFO and have come up with the following projections for this expansion:
Financial Projections for the expansion:
Initial cost at beginning of 2023: $50 million
Free Cash Flow in 2023: $18 million
Free Cash Flow in 2024: $$20 million
Growth Rate after 2024: 2% forever
Current Sustef Data as of 1/1/23:
Face value of bonds: $30 million
Coupon Rate of Bonds: 7%
Maturity of Bonds: 20 Years
Shares of Outstanding Stock: $2million
Price per share of stock: $120
Bonds are currently trading at 102
Beta of Sustef Stock: 1.1
Risk Free Rate: 3%
Estimate of market Risk Premium: 5.7%
Marginal Tax Rate: 21%
Required:
Based on the information above? what is the NPV of the planned expansion?
Step by Step Solution
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The NPV of the planned expansion is 143 million To calculate the NPV we need the following inputs in...
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Auditing An International Approach
Authors: Wally J. Smieliauskas, Kathryn Bewley
6th edition
978-0070968295, 9781259087462, 978-0071051415
