You are thinking about buying a printing press today that will print t-shirts for many years including the celebration of a Men's Basketball National Championship. The machine will cost $25mm to buy and $2mm to install today.For working capital, assume that you must immediately have an increase in accounts receivable of $10mm, an inventory increase of $15mm and an accounts payable increase of $4mm. You will use the machine for regular printing jobs; these jobs will produce $10mm of positive after-tax cash flow per year (assume the cash flows start after one year and end after 20 total years).The victory will produce a special one time extra after-tax cash flow of $16.125mm in 2025 (four years from now) because of the National Championship.Your WACC is 12%. Your tax rate is 25%.At the end of 20 years, you shut down (and sell) the machine for $10mm and liquidate the working capital. Assume the machine had been depreciated to a tax value of $4mm.What is the NPV of the project? Round to the nearest $mm. $74mm would be the form of a correct answer. Hint...you should come pretty close to a nice round number.

The net present value is the difference of the present value of cash inflows and the present value…

Answered: You are thinking about buying a…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 1eM

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You are thinking about buying a printing press today that will print t-shirts for many years including the celebration of a Men's Basketball National Championship.

1. The machine will cost $25mm to buy and $2mm to install today.
2. For working capital, assume that you must immediately have an increase in accounts receivable of $10mm, an inventory increase of $15mm and an accounts payable increase of $4mm. You will use the machine for regular printing jobs; these jobs will produce $10mm of positive after-tax cash flow per year (assume the cash flows start after one year and end after 20 total years).
3. The victory will produce a special one time extra after-tax cash flow of $16.125mm in 2025 (four years from now) because of the National Championship.
4. Your WACC is 12%. Your tax rate is 25%.
5. At the end of 20 years, you shut down (and sell) the machine for $10mm and liquidate the working capital. Assume the machine had been depreciated to a tax value of $4mm.

What is the NPV of the project? Round to the nearest $mm. $74mm would be the form of a correct answer. Hint...you should come pretty close to a nice round number.

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