1. A pharmaceutical company is considering a new three-year expansion project that requires an initial investment...
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1. A pharmaceutical company is considering a new three-year expansion project that requires an initial investment of 3.9 million. The asset is depreciated to zero over the three years of the project using the straight-line method. The project is estimated to generate 2,650,000 in annual sales, with costs of 840,000 per year. Suppose the required return on the project is 10 per cent and the tax rate is 23%. a) Calculate the taxes on (sales - costs). b) Calculate the tax benefit/shield of depreciation. c) Calculate total taxes to be paid. d) Calculate the EBIT. e) Calculate Net Income. f) Now suppose that the project requires an initial investment in Net Working Capital of 300,000 in Year 0, which will be fully recovered at the end of the project. There are no other changes in Net Working Capital during the life of the project. Calculate the firm's Operational Cash Flows for Years 0 to 3 and the project's NPV. Discuss whether the pharmaceutical company should undertake the project. 1. A pharmaceutical company is considering a new three-year expansion project that requires an initial investment of 3.9 million. The asset is depreciated to zero over the three years of the project using the straight-line method. The project is estimated to generate 2,650,000 in annual sales, with costs of 840,000 per year. Suppose the required return on the project is 10 per cent and the tax rate is 23%. a) Calculate the taxes on (sales - costs). b) Calculate the tax benefit/shield of depreciation. c) Calculate total taxes to be paid. d) Calculate the EBIT. e) Calculate Net Income. f) Now suppose that the project requires an initial investment in Net Working Capital of 300,000 in Year 0, which will be fully recovered at the end of the project. There are no other changes in Net Working Capital during the life of the project. Calculate the firm's Operational Cash Flows for Years 0 to 3 and the project's NPV. Discuss whether the pharmaceutical company should undertake the project.
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Related Book For
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Posted Date:
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