# Question

You are helping a manufacturing firm decide whether it should invest in a new plant. The initial investment is expected to be $50 million, and the plant is expected to generate after-tax cash flows of $5 million a year for the next twenty years. There will be an additional investment of $20 million needed to upgrade the plant in ten years.

If the discount rate is 10%,

a. Estimate the NPV of the project.

b. Prepare an NPV Profile for this project.

c. Estimate the IRR forth is project. Is there any aspect of the cash flows that may prove to be a problem for calculating IRR?

If the discount rate is 10%,

a. Estimate the NPV of the project.

b. Prepare an NPV Profile for this project.

c. Estimate the IRR forth is project. Is there any aspect of the cash flows that may prove to be a problem for calculating IRR?

## Answer to relevant Questions

Now assume that the facts in Problem 1 remain unchanged except for the depreciation method, which is switched to an accelerated method with the following depreciation schedule: Year % of Depreciable Asset 1 ...Consider the project described in Problem 6. Assume that the firm plans to finance 40% of its net capital expenditure and working capital needs with debt. a. Estimate the cash flow to equity for each of the four years. b. ...You are the supervisor of a town where the roads are in need of repair. You have a limited budget and are considering two options: • You can patch up the roads for $100,000, but you will have to repeat this expenditure ...Your company is considering producing a new product. You have a production facility that is currently used to only 50% of capacity, and you plan to use some of the excess capacity for the new product. The production facility ...An income bondholder receives interest payments only if the firm makes income. If the firm does not make interest payments in a year, the interest is cumulated and paid in the first year the firm makes income. A preferred ...Post your question

0