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The Clayton Manufacturing company is considering an investment in a new automated inventory system for its warehouse that will provide cash savings to the firm over the next five years. The firms CFO anticipates additional earnings before interest, taxes, depreciation, and amortization, from cost savings equal to 200,000 for the first year of operation of the center, and over the next four years the firm estimates this amount will grow at a rate of 5%per year. The System will require an initial investment of 800,000 that will depreciate over a five year period using straight line depreciation of 160,000 per year and a zero estimated salvage value.
A. Calculate the projects annual project free cash flow (PFCF) for each of the next five years where the firms tax rate is 35%.
B. If the cost of capital for the project is 12%, what is the projected NPV for the investment?
C.What is the minimum Year 1 dollar savings (i.e, EBITDA) required to produce a breakeven NPV = 0?
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Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. The tax rate is 35 percent and the discount rate is 10 percent.
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The board of directors of API, a relatively new electronics manufacturer, has decided to beginning paying a common stock dividend to increase the attractiveness of the stock in the free market
Calculate the IRR of each project and use it to determine the highest cost of capital at which all of the projects would be acceptable.
General hospitals, a not-for-profit acute facility, has estimate the following cost fir its inpatient services: Fixed costs: $10,000,000 Variable cost per inpatient day.
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