Compute the free-cash-flows on the investment

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Reference no: EM132505345

A company is looking to buy a manufacturing warehouse that will allow them to produce candles. The warehouse will produce the following production schedule for candles and will sell the candles for $25 each.

                                 Y1                  Y2              Y3             Y4              Y5

Candle Units       550,000      555,000       566,000    566,500      557,000

Each candle will cost approximately $15 each to make and the operating cost of the warehouse is $125,000 per year. There are no other costs associated with the warehouse. Depreciation is computed on a straight-line method, and the warehouse has an expected value of $125 million. We will sell the warehouse in year 5 for $100 million (ignore taxes on sale). To start the production of candles we need to make a 1 million dollar investment in working capital. The tax rate is 35%. (hint: see the report example on eCampus)

Question 1: Compute the Free-Cash-Flows on this investment (F CF = EBIT × (1 - t) + D&A - CAP EX - ?NOW C)

Question 2: Compute the NPV given a WACC of 10%. (=NPV( ), in excel)

Reference no: EM132505345

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