SignalClear is thinking of building a factory in Lisbon that will have an estimated life of...

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SignalClear is thinking of building a factory in Lisbon that will have an estimated life of at least 50 years. SignalClear is trying to do a valuation of the project: The factory project will have a significant upfront capital cost, but it will allow SignalClear to add incremental business, since Eurozone import restrictions block SignalClear from importing its products made in its Taiwanese factory. There will be rapid growth in sales and margin in the early years, but the growth will level out after seven years and subsequently grow at the pace of the overall market. Economists project that inflation will be 2% at that time, and overall unit demand should grow at 1% p.a. The SignalClear WACC is 11.3%, In Year 7 the EBIT will be $2,165,000, capex will exceed annual depreciation of $210,000 by $17,000, the tax rate is 30%, and working capital will increase by $37,000. Subsequently, EBIT, capex, depreciation, and working capital will all grow at the same rate as Revenue. SignalClear will forecast actual cash flows for 7 years. What present value should SignalClear use to represent years 8 and forward? SignalClear is thinking of building a factory in Lisbon that will have an estimated life of at least 50 years. SignalClear is trying to do a valuation of the project: The factory project will have a significant upfront capital cost, but it will allow SignalClear to add incremental business, since Eurozone import restrictions block SignalClear from importing its products made in its Taiwanese factory. There will be rapid growth in sales and margin in the early years, but the growth will level out after seven years and subsequently grow at the pace of the overall market. Economists project that inflation will be 2% at that time, and overall unit demand should grow at 1% p.a. The SignalClear WACC is 11.3%, In Year 7 the EBIT will be $2,165,000, capex will exceed annual depreciation of $210,000 by $17,000, the tax rate is 30%, and working capital will increase by $37,000. Subsequently, EBIT, capex, depreciation, and working capital will all grow at the same rate as Revenue. SignalClear will forecast actual cash flows for 7 years. What present value should SignalClear use to represent years 8 and forward?

Answer rating: 100% (QA)

To calculate the present value of cash flows for years 8 and beyond we need to determine the perpetuity value A perpetuity represents an infinite stre... View the full answer