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problem: An expansion has the following projects for the next 2 years [in millions] & after year 3 the net free cash flows are expected to grow at 6 percent forever. The company's cost of capital is 8%.

 

Year 1

Year 2

Revenues

900

950

 

 

 

Operating expenses

300

470

(not depreciation)

 

 

Depreciation

125

120

Increase in Working Capital

20

20

Capital expenditures

75

95

Marginal corporate tax rate

40%

40%

[A] find out the incremental earnings for years 1 and 2

[B] find out the present value of the free cash flows of this project?

[C] find out the free cash flows for this project for the years 1 and 2

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M918688

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