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Assume that in the original Ityesi example in Table 23.2, all sales actually occur in the United

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Assume that in the original Ityesi example in Table 23.2, all sales actually occur in the United States and are projected to be $60 million per year for four years. Keeping other costs the same, calculate the NPV of the investmentopportunity.

Assume that in the original Ityesi example in Table 23.2,
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Year Incremental Earnings Forecast (C million) Sales Cost of Goods Sold Gross Profit Operating Expenses Depreciation EBIT Incarne Tax at 4090 Unlevered Net Income Free Cash Flow Plus: Depreciation Less: Capital Expenditures Less: Increases in NWC Pound Free Cash Flow 37.500 37.500 37.500 37.500 -|-15.625 |-15.625 |-15.625 |-15.625 21.875 21.875 21.875 21.875 -4.167 | ー5.625 | ー5.625ー5.625 | ー5.625 3.7503.7503.7503.750 -4.167 12.500 12.500 12.500 12.500 1.667| -5.000| -5.000| -5.000| -5.000 2.500 7.5007.5007.500 7.500 3.750 3.750 3.750 3.750 -15.000 -17.500 11.250 11.250 11.250 11.250

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Table 232 Expected Free Cash Flows from Ityesis UK Project all translated to USD Year 0 1 2 3 4 Incr...View the full answer


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Fundamentals of Corporate Finance

Fundamentals of Corporate Finance

ISBN: 978-0132148238

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Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.

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