I am considering a geographic expansion into the European market for Canopy Pharmaceuticals. Below are the incremental cash flows for the Canopy project for you to use in your analysis. Assume Canopy's marginal tax rate is 35%, their cost of capital is 15.7 % and an expected growth rate of 5% after 2003. Calculate the free cash flows for 1998 – 2003. Calculate the terminal value of the Canopy project in 2003 and the adjusted free cash flow value for 2003. Calculate the NPV, the IRR and the payback period for the Canopy project and recommend whether Canopy should go forward with the expansion project or not.
I am considering a geographic expansion into the European market for Canopy Pharmaceuticals. Below are the incremental cash flows for the Canopy project for you to use in your analysis. Assume Canopy's marginal tax rate is 35%, their cost of capital is 15.7 % and an expected growth rate of 5% after 2003. Calculate the free cash flows for 1998 – 2003. Calculate the terminal value of the Canopy project in 2003 and the adjusted free cash flow value for 2003. Calculate the NPV, the IRR and the payback period for the Canopy project and recommend whether Canopy should go forward with the expansion project or not.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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I am considering a geographic expansion into the European market for Canopy Pharmaceuticals. Below are the incremental cash flows for the Canopy project for you to use in your analysis. Assume Canopy's marginal tax rate is 35%, their cost of capital is 15.7 % and an expected growth rate of 5% after 2003.
- Calculate the free cash flows for 1998 – 2003.
- Calculate the terminal value of the Canopy project in 2003 and the adjusted
free cash flow value for 2003. - Calculate the NPV, the
IRR and the payback period for the Canopy project and recommend whether Canopy should go forward with the expansion project or not.
Transcribed Image Text:1998
1999
2000
2001
2002
2003
15,000
5,500
35,500
13,900
Net Sales
8,500
3,100
46,000
18,000
52,000
20,000
60,000
24,400
Cost of Sales
Depreciation
100
100
100
100
100
100
3,500
5,410
7,800
7,000
20,700
7,245
13,455
SG&A
6,400
5,300
7,200
6,500
18,200
6,370
11,830
R&D
1,100
2,800
4,100
11,000
3.850
7,150
5,400
17,200
6,020
11,180
1,190
417
ЕBIT
700
Income Tax (35%)
245
Net Earnings
Depreciation
Operating Cash Flows
455
774
Net PPE
(906)
(2,030)
(1394)
(780)
(900)
(2457)
(800)
(1267)
(300)
(738)
(200)
(912)
Working Capital
Terminal Value
Free Cash Flows
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