Post a New Question


posted by .

Houston Inc. is considering a project which involves building a new refrigerated
warehouse which will cost $7,000,000 at year = 0 and which is expected to have
before tax operating cash flows of $500,000 at the end of each of the next 20 years.
The Net Working Capital required initially is $50,000, no additional NWC is
required after year 0. The company’s corporate tax rate is 25%. Depreciation of
$350,000 is included in the before tax operating cash flow. In year 20 the asset can
be sold before tax at $75,000.
Part I: If Houston's WACC is 8 percent, what is the project’s NPV? IRR? PI?
Determine the capital budget for Years 0 – 20 and perform the necessary capital
budget analysis.

Part II: The risk/sensitivity factor is WACC. Should WACC increase to 8.5
percent, could this influence your decision on the project? What would happen to

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

More Related Questions

Post a New Question