) What is the Free Cash Flow at the end of the year 2? Q2) How much is the capital gain/loss at the end of the project? Q3) What is the amount of Working capital recovered at the end of the project?
) What is the Free Cash Flow at the end of the year 2? Q2) How much is the capital gain/loss at the end of the project? Q3) What is the amount of Working capital recovered at the end of the project?
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
Related questions
Question
Q1) What is the
Q2) How much is the
Q3) What is the amount of Working capital recovered at the end of the project?
Transcribed Image Text:Below is the information on a project that you are evaluating for deciding on its worthiness as an investment.
ABC company is considering a new investment whose data are shown below.
WACC for the project under consideration
Net investment in fixed assets (immediate)
Required new working capital (immediate)
Working capital from the end of the first year onwards as a Percentage of Sales
Straight line deprec. Rate (every year end from the end of year 1}
Sales revenues (starting at the end of year 1)
Operating cost excluding depreciation, (starting at the end of year 1)
10%
75000
15000
25%
33.33%
75000
25000
Tax Rate
Annual increase in Operating Costs each year from year 2 onwards
Annual increase in Sales revenue from the end of the year 2 onwards
Depreciation: Fixed assets to be fully depreciated in books using the straight line method over 4 years to zero
Salvage value of the fixed assets at the end of the project life
35%
6%
9750
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