Question

Asked Mar 31, 2019

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2. What are the free cash flows that are relevant to analyzing the two projects? Compute the NPVs of the two projects. Which project creates more value?

Step 1

Free cashflow is calculated using formula:

FCFF = EBIT - Taxes + Depreciation - Capex - Change in NWC (Current Assets - Current Liabilities)

THis is how you can do it in excel. Pay special attention to NWC calculation.

Step 2

These are the values you can expect to get. Values may be rounded off as required.

Step 3

This is how NPV and IRR are calculated f...

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