You are thinking about buying a printing press today that will print t-shirts for many years including the celebration of a Men's Basketball National Championship. The machine will cost $25mm to buy and $2mm to install today. For working capital, assume that you must immediately have an increase in accounts receivable of $10mm, an inventory increase of $15mm and an accounts payable increase of $4mm. You will use the machine for regular printing jobs; these jobs will produce $10mm of positive after-tax cash flow per year (assume the cash flows start after one year and end after 20 total years). The victory will produce a special one time extra after-tax cash flow of $16.125mm in 2025 (four years from now) because of the National Championship. Your WACC is 12%. Your tax rate is 25%. At the end of 20 years, you shut down (and sell) the machine for $10mm and liquidate the working capital. Assume the machine had been depreciated to a tax value of $4mm. What is the NPV of the project? Round to the nearest $mm. $74mm would be the form of a correct answer. Hint...you should come pretty close to a nice round number.
You are thinking about buying a printing press today that will print t-shirts for many years including the celebration of a Men's Basketball National Championship. The machine will cost $25mm to buy and $2mm to install today. For working capital, assume that you must immediately have an increase in accounts receivable of $10mm, an inventory increase of $15mm and an accounts payable increase of $4mm. You will use the machine for regular printing jobs; these jobs will produce $10mm of positive after-tax cash flow per year (assume the cash flows start after one year and end after 20 total years). The victory will produce a special one time extra after-tax cash flow of $16.125mm in 2025 (four years from now) because of the National Championship. Your WACC is 12%. Your tax rate is 25%. At the end of 20 years, you shut down (and sell) the machine for $10mm and liquidate the working capital. Assume the machine had been depreciated to a tax value of $4mm. What is the NPV of the project? Round to the nearest $mm. $74mm would be the form of a correct answer. Hint...you should come pretty close to a nice round number.
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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You are thinking about buying a printing press today that will print t-shirts for many years including the celebration of a Men's Basketball National Championship.
-
- The machine will cost $25mm to buy and $2mm to install today.
- For working capital, assume that you must immediately have an increase in accounts receivable of $10mm, an inventory increase of $15mm and an accounts payable increase of $4mm. You will use the machine for regular printing jobs; these jobs will produce $10mm of positive after-tax cash flow per year (assume the cash flows start after one year and end after 20 total years).
- The victory will produce a special one time extra after-tax cash flow of $16.125mm in 2025 (four years from now) because of the National Championship.
- Your WACC is 12%. Your tax rate is 25%.
- At the end of 20 years, you shut down (and sell) the machine for $10mm and liquidate the working capital. Assume the machine had been depreciated to a tax value of $4mm.
What is the NPV of the project? Round to the nearest $mm. $74mm would be the form of a correct answer. Hint...you should come pretty close to a nice round number.
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