Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You've been asked to capital budgetevaluation of a new factory.The initial cost to build the factory is $100 million,the factory will be run for 10

You've been asked to capital budgetevaluation of a new factory.The initial cost to build the factory is $100 million,the factory will be run for 10 years and has an estimated salvage value equal to zero. Accounting tells you to use straight-line depreciation over 10-years to a book value of zero. Sales from the factory are expected to be 50 million each year for the next 10 years (t=1 to 10) and costs (other than depreciation but inclusive of COGS, SGA, etc.) are 55% of revenues. Inventories and A/P will immediately rise by $15 million and $7.5 million respectively and remain at these levels until returning to back to original levels at the end of the project (t=10).A/R will rise to $10 million after the 1st year (i.e., at t=1) and remain at that level until falling back to original levels at the end of the project's life (t=10).If the WACC for the project is 8%, the marginal tax rate is 20%,

What is the FCFF at t=1 (in $millions: i.e, put 5.5 if the answer is 5.5million)

What is the FCFF at t=2 (in $millions: i.e, put 5.5 if the answer is 5.5million)

What is the FCFF at t=10 (in $millions: i.e, put 5.5 if the answer is 5.5million)

What is the NPV of the project? (in $millions: i.e, put 5.5 if the answer is 5.5million)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored 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

Recommended Textbook for

Financial Management For Public Health And Not For Profit Organizations

Authors: Steven A. Finkler

2nd Edition

0131471988, 978-0131471986

More Books

Students also viewed these Finance questions

Question

What is operation costing? When is it used? LO7

Answered: 1 week ago