You have been asked to assess whether it makes sense for CASTEC INC. to invest in a new telecom investment. The initial investment is expected to be S 60 million and the project is expected to generate income for the next 10 years, with the income statement below providing a measure of revenues and expenses for the project. Revenues Cost of Goods Sold Operating Expenses Depreciation |EBIT |-Interest Expenses |EBT Taxes @ 30% Net Income $28,000,000 $12,000,000 $6,000,000 $5,000,000 $5,000,000 $2,000,000 $3,000,000 S 900,000 $2,100,000 If the cost of capital for CASTEC INC. is 12% should the company invest in this project? Show all your work and justify your recommendation to receive any credit.

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk
Section: Chapter Questions
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You have been asked to assess whether it makes sense for CASTEC INC. to invest in a new
telecom investment. The initial investment is expected to be S 60 million and the project is
expected to generate income for the next 10 years, with the income statement below providing a
measure of revenues and expenses for the project.
Revenues
Cost of Goods Sold
Operating Expenses
Depreciation
|EBIT
|-Interest Expenses
|EBT
Taxes @ 30%
Net Income
$28,000,000
$12,000,000
$6,000,000
$5,000,000
$5,000,000
$2,000,000
$3,000,000
S 900,000
$2,100,000
If the cost of capital for CASTEC INC. is 12% should the company invest in this project? Show
all your work and justify your recommendation to receive any credit.
Transcribed Image Text:You have been asked to assess whether it makes sense for CASTEC INC. to invest in a new telecom investment. The initial investment is expected to be S 60 million and the project is expected to generate income for the next 10 years, with the income statement below providing a measure of revenues and expenses for the project. Revenues Cost of Goods Sold Operating Expenses Depreciation |EBIT |-Interest Expenses |EBT Taxes @ 30% Net Income $28,000,000 $12,000,000 $6,000,000 $5,000,000 $5,000,000 $2,000,000 $3,000,000 S 900,000 $2,100,000 If the cost of capital for CASTEC INC. is 12% should the company invest in this project? Show all your work and justify your recommendation to receive any credit.
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