SLPC has decided to start a new project manufacturing gardening tools, an entirely new area for the company. The company is considering a 4 year project in which revenues will be £6M/year (constant for 4 years) and the capital investment requirement will be £3M (zero value after 4 years). This investment is depreciated on a straight line basis over 4 years and the company's tax rate is 30%.
1. Calculate the incremental free cash flows for the project
2. If discount rate is 12.8% shoudl the company go ahead with the project?
To Calculate Incremental free cash flows for the project and IRR of the Project-
The IRR of the Project is greater than discount rate of the company. So, company go head with this project.
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