Initial investment = equipment cost + investment in net working capital = 19 + 8 = 27 million
Operating cash flow (OCF) from year 1 to year 10 = 7.451 million
Free Cash Flow (FCF) = - Initial investment + OCF + (recovery of NWC in Year 10)
FCF0 = -27; FCF1 to FCF2 = 7.451; FCF10 = 7.451 + 8 = 15.451
Using these FCFs and cost of capital of 9%, value of the project will be:
NPV = -27 + 7.451*PVIFA(9%, 9) + 15.451/(1+9%)^10 = -27 + (7.451*5.9952) + (15.451*0.42241) = 24.197 million
You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre...
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You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.7 million for this report, and I am not sure their analysis makes sense. Before we spend the $23 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates...
You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops aconsultant's report on your desk, and complains, "We owe these consultants $ 1.9 million for this report, and I am not sure their analysis makes sense. Before we spend the $ 28 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following...
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You are a manager at Percolated Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $ 1.7 million for this report, and I am not sure their analysis makes sense. Before we spend the $ 28.3 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the...
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You are a manager at Northern Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.7 million for this report, and I am not sure their analysis makes sense. Before we spend the $27 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates...