The Executive Assistant (EA) to the CFO of ABC Ltd. was given the task of analyzing...

 

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The Executive Assistant (EA) to the CFO of ABC Ltd. was given the task of analyzing the value of a renovation project for Plant A. The forecasts. as provided below, was presented to the EA by the plant manager. All values are in INR million. The corporate tax rate is 25%. Year 1. Initial Investment (CAPEX) 2. Revenues 3. Variable costs 4. Depreciation 5. Fixed costs 6. Interest expense 7. Net proceeds to debt 8. Principal on debt which is repaid 0 600 120 325 81 120 12 17 2 350 88 120 12 17 3 350 88 12 17 350 20 120 120 120 5 250 90 63 12 12 14 14 100 9. Change in Operating Net Working capital 60 280 -340 Project the Free cash flow to the equity holders with the above data for all years from Year 0 to Year 5. If the cost of equity capital is 16%, what is the value to the renovation project for Plant A? Should they go ahead with the renovation? Why or Why not? There are no preferred equity holders. [10] The Executive Assistant (EA) to the CFO of ABC Ltd. was given the task of analyzing the value of a renovation project for Plant A. The forecasts. as provided below, was presented to the EA by the plant manager. All values are in INR million. The corporate tax rate is 25%. Year 1. Initial Investment (CAPEX) 2. Revenues 3. Variable costs 4. Depreciation 5. Fixed costs 6. Interest expense 7. Net proceeds to debt 8. Principal on debt which is repaid 0 600 120 325 81 120 12 17 2 350 88 120 12 17 3 350 88 12 17 350 20 120 120 120 5 250 90 63 12 12 14 14 100 9. Change in Operating Net Working capital 60 280 -340 Project the Free cash flow to the equity holders with the above data for all years from Year 0 to Year 5. If the cost of equity capital is 16%, what is the value to the renovation project for Plant A? Should they go ahead with the renovation? Why or Why not? There are no preferred equity holders. [10]

Answer rating: 100% (QA)

To calculate the free cash flow to equity holders and evaluate the value of the renovation project for Plant A we need to calculate the cash flows for each year and discount them to their present valu... View the full answer