A company is considering expanding a factory. The expansion requires 400 MUSD investment immediately. It should generate 117 MUSD tax adjusted cash flow each year for 7 years. The factory can be scrapped for 360 at the end of its lifetime. The firm's cost c capital is 19%. 1. Compute the NPV of the project. MUSD 2. Compute the projects Profitability Index. Answer: 3. Estimate the Discounted Payback Period (0 means it doesn't break even): 4. Estimate the Break-Even Period (0 means it doesn't break even):
A company is considering expanding a factory. The expansion requires 400 MUSD investment immediately. It should generate 117 MUSD tax adjusted cash flow each year for 7 years. The factory can be scrapped for 360 at the end of its lifetime. The firm's cost c capital is 19%. 1. Compute the NPV of the project. MUSD 2. Compute the projects Profitability Index. Answer: 3. Estimate the Discounted Payback Period (0 means it doesn't break even): 4. Estimate the Break-Even Period (0 means it doesn't break even):
Chapter9: Capital Budgeting Techniques
Section: Chapter Questions
Problem 12PROB
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Question
A company is considering expanding a factory. The expansion requires 400 MUSD
investment immediately. It should generate 117 MUSD tax adjusted cash flow each year
for 7 years. The factory can be scrapped for 360 at the end of its lifetime. The firm's cost c
capital is 19%.
1. Compute the NPV of the project.
MUSD
2. Compute the projects Profitability Index. Answer:
3. Estimate the Discounted Payback Period (0 means it doesn't break even):
4. Estimate the Break-Even Period (0 means it doesn't break even):
Transcribed Image Text:A company is considering expanding a factory. The expansion requires 400 MUSD
investment immediately. It should generate 117 MUSD tax adjusted cash flow each year
for 7 years. The factory can be scrapped for 360 at the end of its lifetime. The firm's cost o
capital is 19%.
1. Compute the NPV of the project. 155.1
◆ MUSD
2. Compute the projects Profitability Index. Answer:
3. Estimate the Discounted Payback Period (0 means it doesn't break even):
4. Estimate the Break-Even Period (0 means it doesn't break even):
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