You are given the following information regarding a Solar Energy System project: • The Solar system requires an upfront cost of $32.5 million. This cost can be depreciated on straight-line basis over the first 4 years. However, the project has an economic life of 7 years. • The project's interest expense is $4.1 million per year. • There is no requirement for extra investment in net operating working capital. • The project can help the firm to increase its sales by $24.8 million per year over the project's economic life. The operating cost excluding depreciation is equal to 46.0% of the increase in annual sales. • The project's after-tax salvage value at t = 7 is expected to be $2.4 million. • The company's tax rate is 38.0%. • For the discount rate for the project, the firm's CFO decides to discount the operating cash flows at the company's overall weighted average cost of capital of 8.7% while discounting the salvage value at 12.8% due to its uncertainty. What is the net present value (NPV) of the Solar Energy System project? million. (Give answer to 2 decimal places).

You are given the following information regarding a Solar Energy System project: • The Solar system requires an upfront cost of $32.5 million. This cost can be depreciated on straight-line basis over the first 4 years. However, the project has an economic life of 7 years. • The project's interest expense is $4.1 million per year. • There is no requirement for extra investment in net operating working capital. • The project can help the firm to increase its sales by $24.8 million per year over the project's economic life. The operating cost excluding depreciation is equal to 46.0% of the increase in annual sales. • The project's after-tax salvage value at t = 7 is expected to be $2.4 million. • The company's tax rate is 38.0%. • For the discount rate for the project, the firm's CFO decides to discount the operating cash flows at the company's overall weighted average cost of capital of 8.7% while discounting the salvage value at 12.8% due to its uncertainty. What is the net present value (NPV) of the Solar Energy System project? million. (Give answer to 2 decimal places).

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 1lM

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