Evaluating a project that involves an investment

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ABC inc is evaluating a project that involves an investment of $15 million in fixed plant and equipment. The firm expects to spend the money on fixed assets in year 0. The project is expected to generate revenues of $15 million in the first year which is expected to grow at a constant rate of 10% p.a. with an EBITDA margin of 40%. (COGS is 60% of Sales). The firm has a uniform policy of giving one month's credit to its customers, obtaining two month's credit from its suppliers and having one month worth of inventory. The project is expected to last for three years and the firm can depreciate the fixed assets on a straight line basis over the three years to a final book value of zero. After three years, the firm hopes to recover the money invested in NWC and sell the equipment for a salvage value of $1.3 million. The WACC of the project is 12% and the firm expects to pay 35% tax on its profits. Assume 30 days in a month and 360 days in a year.

Questions

1- FCF Year 0, 1,2 ,3

2 - NPV of the project

Reference no: EM133067819

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