A successful firm is considering a proposed project that has the following projected cash flows. The...

  

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A successful firm is considering a proposed project that has the following projected cash flows. The capital investment in plant and property at time zero is $60, and these assets have a residual value of $15 and can be depreciated on straight-line basis over 3 years at which time they will have an expected salvage value of $20. Equipment for the project costs $30 at time zero and can be fully depreciated over 3 years with no salvage value. The project also requires working capital of $10 at time zero and NWC changes according to the projections. The project owners also face a $3 payment at time zero for a market analysis done earlier that helped them with the revenue data for the project. The expected tax rate is 30%. Year Revenues Cost of Goods Sold Selling and Administrative Costs Fixed Operating Costs Market Analysis Payment 0 3 10 60 1 100 45 10 5 30 Net Working Capital requirements Capital Expenditure on plant Expected Salvage Value of plant Capital Expenditure on equipment Expected Salvage value of equipment a. (10 pts) Determine the unlevered free cash flows of the project for years 0, 1 2 and 3. 12 2 120 52 12 6 14 3 140 59 14 7 0 20 0 A successful firm is considering a proposed project that has the following projected cash flows. The capital investment in plant and property at time zero is $60, and these assets have a residual value of $15 and can be depreciated on straight-line basis over 3 years at which time they will have an expected salvage value of $20. Equipment for the project costs $30 at time zero and can be fully depreciated over 3 years with no salvage value. The project also requires working capital of $10 at time zero and NWC changes according to the projections. The project owners also face a $3 payment at time zero for a market analysis done earlier that helped them with the revenue data for the project. The expected tax rate is 30%. Year Revenues Cost of Goods Sold Selling and Administrative Costs Fixed Operating Costs Market Analysis Payment 0 3 10 60 1 100 45 10 5 30 Net Working Capital requirements Capital Expenditure on plant Expected Salvage Value of plant Capital Expenditure on equipment Expected Salvage value of equipment a. (10 pts) Determine the unlevered free cash flows of the project for years 0, 1 2 and 3. 12 2 120 52 12 6 14 3 140 59 14 7 0 20 0

Answer rating: 100% (QA)

To calculate the unlevered free cash flows for each year we need to calculate the cash flows at each ... View the full answer