US Steel is considering adding an additional furnace that will operate for ten years, starting in Year 1 (Currently, it's Year 0). Last year the company commissioned a feasibility study that costs $1 million. The study came up with the following numbers. The new furnace costs $1,000 million and has a salvage value of $200 million at the end of the ten-year period Using the new furnace increases sales by $150 million per year and involves operating expenses of $10 million per year. Moreover, working capital requirements increase by $20 million immediately (added back once the project is over). According to IRS, the new furnace must be depreciated straight line over 8 years. The new furnace will need parts from an old furnace US Steel already owns. The old furnace is fully depreciated and has after-tax resale value of $30 million. Without the parts, the old furnace has no resale value. The corporate tax rate is 35% and the cost of capital is 10%. 

Should US Steel go ahead with the new furnace? Draw your own table to calculate free cash flows?

Provide details on how you get to each line of items.

Answer rating: 100% (QA)

Since the NPV is in negative ie 20771 mi... View the full answer