1) Chemical Tech Inc is undertaking a project that will require an upfront inves
ID: 2750017 • Letter: 1
Question
1) Chemical Tech Inc is undertaking a project that will require an upfront investment today in net working capital, and plant and equipment (i.e., capital expenditures) of $100 million and $200 million, respectively. If there are no revenues or expenses expected until next year, what is the project's free cash flow today in millions of dollars?
-300
At the end of the first year, Chemical Tech Inc is expecting sales of $250 million and costs of $125 million. There are no more required investments in either net working capital or plant and equipment. However, the existing plant and equipment will experience $50 million of depreciation.
Assume that Chemtec's marginal tax rate on earnings is 35%.
Assuming that all of these cash flow occur at the end of the first year, what is the first year's free cash flow?
2) FRD is evaluating a project that has the following annual free cash flows:
If the project's discount rate is 12%, then what is the NPV of the project?
3) Makie is evaluating a project that has the following annual free cash flows:
What is the project’s IRR?
Period 0 1 2 Free Cash Flow 150 100 150Explanation / Answer
1.
million
2.
3.
sales $ 250.00 million Costs $ 125.00 million Depriciation $ 50.00 million Tax rate @35% $ 26.25 million FCF $ 98.75million
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