Part AYou are a banker to Livingstone Thompson Limited, a textile manufacturing company.Livingstone Thompson Ltd. is planning to establish a new factory overseas. The projectrequires an initial investment of £15 million. Livingstone Thompson Ltd. have told youthat the factory will run for six years and then be sold to a local entity. The FinanceDepartment of Livingstone Thompson Ltd. has estimated the following yearly cashflows:Year0ii.iii.12356Cash Flow (£)-30,000,0008,000,0008,000,0008,000,0008,000,0008,000,00014,000,000The Financial Manager of Livingstone Thompson Ltd. has decided that the company'scost of capital of 15% is an appropriate hurdle rate for this project and informed youwho will be providing the finance.i.Calculate the Net Present Value (NPV) for this project.Calculate the Internal Rate of Return (IRR)of this project.Make a recommendation to your department manager concerning whether toprovide finance for this project.

Net Present Value (NPV) = Present value of cash flows - Initial investmentNet Present Value (NPV) is…

art A You are a banker to Livingstone Thompson Limited, a textile manufacturing company. Livingstone Thompson Ltd. is planning to establish a new factory overseas. The project requires an initial investment of £15 million. Livingstone Thompson Ltd. have told you that the factory will run for six years and then be sold to a local entity. The Finance Department of Livingstone Thompson Ltd. has estimated the following yearly cash flows: Year 0 3 Cash Flow (£) -30,000,000 8,000,000 8,000,000 8,000,000 8,000,000 8,000,000 14,000,000 The Financial Manager of Livingstone Thompson Ltd. has decided that the company's wattal 150

art A You are a banker to Livingstone Thompson Limited, a textile manufacturing company. Livingstone Thompson Ltd. is planning to establish a new factory overseas. The project requires an initial investment of £15 million. Livingstone Thompson Ltd. have told you that the factory will run for six years and then be sold to a local entity. The Finance Department of Livingstone Thompson Ltd. has estimated the following yearly cash flows: Year 0 3 Cash Flow (£) -30,000,000 8,000,000 8,000,000 8,000,000 8,000,000 8,000,000 14,000,000 The Financial Manager of Livingstone Thompson Ltd. has decided that the company's wattal 150

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Part A
You are a banker to Livingstone Thompson Limited, a textile manufacturing company.
Livingstone Thompson Ltd. is planning to establish a new factory overseas. The project
requires an initial investment of £15 million. Livingstone Thompson Ltd. have told you
that the factory will run for six years and then be sold to a local entity. The Finance
Department of Livingstone Thompson Ltd. has estimated the following yearly cash
flows:
Year
0
ii.
iii.
1
2
3
5
6
Cash Flow (£)
-30,000,000
8,000,000
8,000,000
8,000,000
8,000,000
8,000,000
14,000,000
The Financial Manager of Livingstone Thompson Ltd. has decided that the company's
cost of capital of 15% is an appropriate hurdle rate for this project and informed you
who will be providing the finance.
i.
Calculate the Net Present Value (NPV) for this project.
Calculate the Internal Rate of Return (IRR)of this project.
Make a recommendation to your department manager concerning whether to
provide finance for this project.

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