question archive Suppose ABC firm is considering an investment that would extend the life of one of its facilities for 3 years

Suppose ABC firm is considering an investment that would extend the life of one of its facilities for 3 years

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Suppose ABC firm is considering an investment that would extend the

life of one of its facilities for 3 years. The project would require upfront costs of $5.26M plus $23.4M investment in equipment. The equipment will be obsolete in (N+2) years and will be depreciated via straight-line over that period (Assume that the equipment can't be sold). During the next 3 years, ABC expects annual sales of 73M per year from this facility. Material costs and operating expenses are expected to total 34M and 5.39M, respectively, per year. ABC expects no net working capital requirements for the project, and it pays a tax rate of 39%. ABC has 73% of Equity and the remaining is in Debt. If the Cost of Equity and Debt are 17.41% and 4.33% respectively, Should they take the project? (Evaluate the project only for 3 years)

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