2. What is the capitalized cost of a Sugar Mill|Plant w/c requires Php 5,000,000 forconstruction ,Php 100,000 at the end ofevery year for the first 7 years and then Php120,000 every year thereafter for operatingexpenses.Php 400,000 every 4 years forreplacement of equipment with 10% interestper annum.

Construction cost = Php 5,000,000 Operating expense for first 7 years = Php 100,000 Operating…

Answered: What is the capitalized cost of a Sugar…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 1PROB

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Cost of Capital, Net Present Value Leakam Companys product engineering department has developed a new product that has a 3-year life cycle. Production of the product requires development of a new process that requires a current 100,000 capital outlay. The 100,000 will be raised by issuing 60,000 of bonds and by selling new stock for 40,000. The 60,000 in bonds will have net (after-tax) interest payments of 3,000 at the end of each of the 3 years, with the principal being repaid at the end of Year 3. The stock issue carries with it an expectation of a 17.5% return, expressed in the form of dividends at the end of each year (with 7,000 in dividends expected for each of the next 3 years). The sources of capital for this investment represent the same proportion and costs that the company typically has. Finally, the project will produce after-tax cash inflows of 50,000 per year for the next 3 years. Required: 1. Compute the cost of capital for the project. (Hint: The cost of capital is a weighted average of the two sources of capital, where the weights are the proportion of capital from each source.) 2. CONCEPTUAL CONNECTION Compute the NPV for the project. Explain why it is not necessary to subtract the interest payments and the dividend payments and appreciation from the inflow of 50,000 in carrying out this computation.
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What is the capitalized cost of a Sugar Mill Plant w/c requires Php 5,000,000 for construction ,Php 100,000 at the end of every year for the first 7 years and then Php 120,000 every year thereafter for operating expenses.Php 400,000 every 4 years for replacement of equipment with 10% interest