Your company is about to undertake a major investment project. The project will require an initial outlay of $150 million for capital expenditure plus another $20 million for working capital. You expect that the after-tax free cash flows for the project will be $20 million, $30 million, and $35 million for year 1, 2, and 3. After Year 3, the new project is expected to have reached its market potential, so the free cash flows are expected to grow at the rate of 2% per year indefinitely into the future. The cost of capital is 20%. What is the project’s NPV? a. – $16.6 million b. $4.4 million c. – $12.4 million d. $26.7 million e. $2.5 million
Your company is about to undertake a major investment project. The project will require an initial outlay of $150 million for capital expenditure plus another $20 million for working capital. You expect that the after-tax free cash flows for the project will be $20 million, $30 million, and $35 million for year 1, 2, and 3. After Year 3, the new project is expected to have reached its market potential, so the free cash flows are expected to grow at the rate of 2% per year indefinitely into the future. The cost of capital is 20%. What is the project’s NPV? a. – $16.6 million b. $4.4 million c. – $12.4 million d. $26.7 million e. $2.5 million
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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Question
Your company is about to undertake a major investment project. The project will require an initial outlay of $150 million for capital expenditure plus another $20 million for working capital. You expect that the after-tax
| a. |
– $16.6 million |
|
| b. |
$4.4 million |
|
| c. |
– $12.4 million |
|
| d. |
$26.7 million |
|
| e. |
$2.5 million |
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