Calculate the base-case npv

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Smartline is considering a new project that requires an investment of $60 million in machinery. This is expected to produce sales of $94 million per year for 4 years and operating expenses of $71 million per year for 4 years. The machinery will be fully depreciated to a zero book value over 4 years using straight-line depreciation. They can sell it for $5 million at the end of 4 years. Working capital costs are negligible. The tax rate is 30%. The unlevered cost of capital is 12%.

(1) Calculate the base-case NPV.

(2) The project will be financed with $20,000,000 in bonds. The bonds have a 4-year life, a coupon rate of 6% and a yield of 6%. Find the adjusted present value (APV)

Reference no: EM132580088

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