Purchase price $200 Mil.

Salvage at the end of year five $50 mil.

Firm borrows $200 million to fully finance the deal

The borrowing terms are level annual principal payments of $40 mil apiece for five years

Borrowing rate on loan is 6%. Total interest expense over the life of the loan is $30 mil.

Discount rate 5% (.952, .907, .864, .823, and .783)

Cash flows years one through three $45 mil apiece; Cash flows years four and five $55 mil apiece.

Year    Nominal cash flow    Factor        NPV

1    $45 mil            .952        $42.84 mil

2    $45 mil            .907        $40.81mil

3    $45 mil            .864        $38.88mil

4    $55 mil            .823        $45.26mil

5    $55 mil            .783        $43.06mil

Salv.    $50 mil            .783        $39.15 mil

Totals    $285 mil                $250.00 mil

Based on the NPV of the cash flows, is this a good project to fund?

Answer rating: 100% (QA)

The detailed answer for the above question is provided below Yes this is a good project t... View the full answer