NHP invested $100 million in a new production line which will generate after-tax operating cash flow...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
NHP invested $100 million in a new production line which will generate after-tax operating cash flow of $40 million at the end of each of the next 5 years. There is no net working capital investment required. The new line will wear out and will have zero salvage value. NHP's cost of capital is 10% and its corporate tax rate is 30%. Note that after-tax operating cash flow is equal to net operating profit after-tax (NOPAT) plus depreciation. a. Find the NPV of the project. b. Find the PV of the project's EVAS under each of the depreciation schedules below: Straight-line full depreciation over 5 years; (i) (ii) Annual depreciation of 40%, 30%, 20%, 10% and 0% over 5 years; Annual depreciation of 25%. (iii) HINT: To compute the annual EVAS, use the definition EVA = NOPAT - (Capital Employed x Cost of Capital), where Capital Employed is the value of the asset at the start of each year. NOPAT = Net Operating Profit After Tax. c. What is the relationship between the NPV and the PV of EVAs of a project? NHP invested $100 million in a new production line which will generate after-tax operating cash flow of $40 million at the end of each of the next 5 years. There is no net working capital investment required. The new line will wear out and will have zero salvage value. NHP's cost of capital is 10% and its corporate tax rate is 30%. Note that after-tax operating cash flow is equal to net operating profit after-tax (NOPAT) plus depreciation. a. Find the NPV of the project. b. Find the PV of the project's EVAS under each of the depreciation schedules below: Straight-line full depreciation over 5 years; (i) (ii) Annual depreciation of 40%, 30%, 20%, 10% and 0% over 5 years; Annual depreciation of 25%. (iii) HINT: To compute the annual EVAS, use the definition EVA = NOPAT - (Capital Employed x Cost of Capital), where Capital Employed is the value of the asset at the start of each year. NOPAT = Net Operating Profit After Tax. c. What is the relationship between the NPV and the PV of EVAs of a project?
Expert Answer:
Answer rating: 100% (QA)
To solve this problem well calculate the NPV of the project and the present value PV of the projects Economic Value Added EVA under different depreciation schedules a NPV Calculation To find the NPV o... View the full answer
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Posted Date:
Students also viewed these finance questions
-
"Outsourcing and Marketing Ethics." Read the article found in this week's folder, "Apple accused of worker violations in Chinese factories." Then, read the article, "Is Outsourcing a Problem or is it...
-
Your team of four people form a financial analysis team at Aussie Finance Consulting (AFC), a renowned financial institution. The executive management of AFC has assigned you a task to carry out a...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
You have been asked to calculate the cost of capital of Mulligan Ltd, a company which specialises in developing new medical equipment products. The following information is available regarding the...
-
What is the function of the round third prong in a modern household electrical plug?
-
Consider a cylindrical vessel with a diameter of $610 \mathrm{~mm}$ packed with solid spheres with a diameter of $50 \mathrm{~mm}$. (a) From equation (4-1), calculate the asymptotic porosity of the...
-
D Lane purchased two cars for his business under hire purchase agreements: Both agreements provided for payment to be made in 24 monthly instalments commencing on the last day of the month following...
-
Before Gordon Corporation engages in the treasury stock transactions listed below, its general ledger reflects, among others, the following account balances (par value of its stock is $30 per share)....
-
Left: 0:15:54 Madison Hart: Attempt 1 Listen Find the equation of the line through (-4,3) with slope -(3)/(4) 2 answers
-
1. Develop a simulation model for 52 weeks of operation at Ebony. Graph the inventory of soap over time. What is the total cost (inventory cost plus production change cost) for the 52 weeks? 2. Run...
-
15. Using the Truth Tables below, demonstrate that the Boolean Expression (on the left) is equal to the Boolean Expression (on the right). 6pts. A+AB=A+B A 0 0 1 1 B 0 1 0 1 A AB 16. Convert the...
-
Mathes Corporation manufactures paper products. The company operates a landfill, which it uses to dispose of nonhazardous trash. The trash is hauled from the two nearby manufacturing facilities in...
-
For this C++ program can you please complete Time.cpp file using overloaded operators. Below are the screenshots that can you be helpful. So can you please complete the Time.cpp file with the C++...
-
You are a newly employed Accountant at Harvey company Ltd. The company produces two products, X and Y. Within the first week of your arrival, you were presented with the following information by a...
-
4. When properly aligned, gears transmit torques to a shaft. When designing a bioreactor for cell culture, you have been assigned the task of designing the shafts inside the bioreactor. A motor...
-
+ PARTICULARS The following Information pertains to the production department of ABC Corp. BUDGETED COST Direct Materials ACTUAL COST 247 000 230 000 Direct Labor 183 500 165 000 Indirect Salaries*...
-
The Happy Hang Glide Company is purchasing a building and has obtained a $190,000 mortgage loan for 20 years. The loan bears a Compound annual interest rate of 17 percent and calls for equal annual...
-
Modify the CYK algorithm so that it applies to any CFG, not just those in CNF.
-
Why do investors typically accept a lower risk-adjusted rate of return on debt capital than equity capital? Suppose a stable, financially healthy, profitable, tax-paying firm that has been financed...
-
Douglas C. Mather, founder, chair, and chief executive of Fly-by-Night International Group (FBN), lived the fast-paced, risk-seeking life that he tried to inject into his company. Flying the companys...
-
The 3M Company is a global diversified technology company active in the following product markets: consumer and office; display and graphics; electronics and communications; health care; industrial;...
-
Placer Company acquired a 75 percent interest in Summer Company for \($8,000,000\) in cash. The condensed balance sheets immediately prior to the acquisition are below: Additional information: 1. In...
-
On January 1, 2007, Harrah's Entertainment, Inc. acquired a 70 percent interest in the company that owned Emerald Safari Resort for \($592\) million in cash and stock. Harrah's is now part of...
-
On January 1, 2016, Paxon Corporation acquired 90 percent of the outstanding common stock of Saxon Company for \($1,620\) million cash. The fair value of the 10 percent noncontrolling interest in...
Study smarter with the SolutionInn App