The firm is looking to expand its operations by 10% of the firm’s net property, plant, and equipment. (Calculate this amount by taking 10% of the property, plant, and equipment figure that appears on the firm’s balance sheet.) Apple Inc.'s Balance shows Property Plant and Equipment as 33,783,000.
The estimated life of this new property, plant, and equipment will be 12 years. The salvage value of the equipment will be 5% of the property, plant and equipment’s cost.
The annual EBIT for this new project will be 18% of the project’s cost.
The company will use the straight-line method to depreciate this equipment. Also assume that there will be no increases in net working capital each year. The marginal tax rate is 25.06%:
The hurdle rate for this project will be the WACC which is 9.88%
Deliverable for this Project
Calculations for the amount of property, plant, and equipment and the annual depreciation for the project
Calculations that convert the project’s EBIT to free cash flow for the 12 years of the project.
The following capital budgeting results for the project
Net present value
Internal rate of return
Discounted payback period.
Should the project happen?