XYZ Co is considering to purchase equipment that has 6 years of life and requires an initial capital outlay of $60 million. The equipment will be depreciated using straight line method to zero book value in 6 years. The salvage value of the equipment is expected to be $10 million in six years. The equipment is expected to increase revenue by $25 million and increase expenses by $8 million each year over the next six years. XYZ has an income tax rate of 20%, and a cost of capital of 12%. 5 1. Determine the initial cash flow of the investment at time 0, operating cash flow each year for the next 5 years, and the terminal cash flow of the investment in year 6. 2. Determine the net present value and internal rate of return of the investment. Should the investment be taken? 3. Copy and past your work done for this problem above to the right. Use Excel Goal Seek to find the cost of capital that results in a net present value of $5 million. (You should have the results of both 2. and 3. shown side by side.).
XYZ Co is considering to purchase equipment that has 6 years of life and requires an initial capital outlay of $60 million. The equipment will be
1. Determine the initial cash flow of the investment at time 0, operating cash flow each year for the next 5 years, and the terminal cash flow of the investment in year 6.
2. Determine the
3. Copy and past your work done for this problem above to the right. Use Excel Goal Seek to find the cost of capital that results in a net present value of $5 million. (You should have the results of both 2. and 3. shown side by side.).
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