You have been asked to assess whether it makes sense for CASTEC INC. to invest in a new telecom investment. The initial investment is expected to be $60 million and the project is expected to generate income for the next 10 years, with the income statement below providing a measure of revenues and expenses for the project. The project is expected to increase working capital investment by an amount equal to 12% of annual revenues. The working capital investment is expected to be recovered at the end of the project. Revenues $28,000,000 Cost of Goods Sold $12,000,000 Operating Expenses $6,000,000 Depreciation $5,000,000 EBIT $5,000,000 -Interest Expenses $2,000,000 EBT $3,000,000 Taxes @ 30% $900,000 Net Income $2,100,000 If the cost of capital for CASTEC INC. is 12% should the company invest in this project? Show all your work and justify your recommendation to receive any credit.
You have been asked to assess whether it makes sense for CASTEC INC. to invest in a new telecom investment. The initial investment is expected to be $60 million and the project is expected to generate income for the next 10 years, with the income statement below providing a measure of revenues and expenses for the project. The project is expected to increase working capital investment by an amount equal to 12% of annual revenues. The working capital investment is expected to be recovered at the end of the project. Revenues $28,000,000 Cost of Goods Sold $12,000,000 Operating Expenses $6,000,000 Depreciation $5,000,000 EBIT $5,000,000 -Interest Expenses $2,000,000 EBT $3,000,000 Taxes @ 30% $900,000 Net Income $2,100,000 If the cost of capital for CASTEC INC. is 12% should the company invest in this project? Show all your work and justify your recommendation to receive any credit.
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 4P
Related questions
Question
100%
You have been asked to assess whether it makes sense for CASTEC INC. to invest in a new telecom investment. The initial investment is expected to be $60 million and the project is expected to generate income for the next 10 years, with the income statement below providing a measure of revenues and expenses for the project. The project is expected to increase working capital investment by an amount equal to 12% of annual revenues. The working capital investment is expected to be recovered at the end of the project.
| Revenues | $28,000,000 |
| Cost of Goods Sold | $12,000,000 |
| Operating Expenses | $6,000,000 |
| $5,000,000 | |
| EBIT | $5,000,000 |
| -Interest Expenses | $2,000,000 |
| EBT | $3,000,000 |
| Taxes @ 30% | $900,000 |
| Net Income | $2,100,000 |
If the cost of capital for CASTEC INC. is 12% should the company invest in this project? Show all your work and justify your recommendation to receive any credit.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning