Question

SLPC has decided to start a new project manufacturing gardening tools, an entirely new area for...

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?

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Answer #1

Solution:-

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.

If you have any query related to question then feel free to ask me in a comment.Thanks.

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