Condott Corporation is considering a new project with an initial outlay of $200 million that will result in expected additional revenue of $40 million per year. The project will incur annual maintenance costs of $10 million and will last indefinitely. The effective tax rate on Condott's profits is 30%. Condott's capital structure is 30% debt and 70% equity, which is the same proportions it would use for the new project. Its debt is riskless with an interest rate of 8% per year. a) What is unlevered expected cash flows from this project? b) Is the required rate of return on unlevered investments is 10% per year, what is this project's NPV? c) Use the APV method to find the NPV of Skippy's project.
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Condott Corporation is considering a new project with an initial outlay of $200 million that will result in expected additional revenue of $40 million per year. The project will incur annual maintenance costs of $10 million and will last indefinitely. The effective tax rate on Condott's profits is 30%. Condott's capital structure is 30% debt and 70% equity, which is the same proportions it would use for the new project. Its debt is riskless with an interest rate of 8% per year.
a) What is unlevered expected cash flows from this project?
b) Is the required rate of
c) Use the APV method to find the NPV of Skippy's project.
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