Question

Using Excel (if applicable),

Grangier Investment Co is considering a new investment in a project whose data are shown below. The equipment would be fully depreciated on a straight-line basis over the project's 3-year life and would require additional net operating working capital that would be recovered at the end of the project's life. The company owns the building where this equipment will be operational. The company currently has an offer from a competitor to buy said building for $100,000 from Grangier if it decides not to acquire the equipment and move forward with the project. Revenues and other operating costs are expected to be constant over the project's life. What is the initial investment the company must make in Year 0?

WACC	12%
Net investment in fixed assets (depreciable basis)	$200,000
Required net operating working capital adjustments	$50,000
Straight-line depreciation rate	33.333%
Annual sales revenues	$150,000
Annual operating costs (excl. depr.)	$115,000
Tax rate	21%

Answer 1