New flyer industries has decided to expand its productions of hybrid transit bus
ID: 2821123 • Letter: N
Question
New flyer industries has decided to expand its productions of hybrid transit buses. The firm expects incremental cash flows of $40 million per year for the near 10 years. The upfront cost of the expansion is $150 million and there’s are additional insurance costs for external financing of $15 million. If the new flyers WACC is 7.5% what is the NPV of this project New flyer industries has decided to expand its productions of hybrid transit buses. The firm expects incremental cash flows of $40 million per year for the near 10 years. The upfront cost of the expansion is $150 million and there’s are additional insurance costs for external financing of $15 million. If the new flyers WACC is 7.5% what is the NPV of this projectExplanation / Answer
Year-0 cost or Initial cost = Expansion cost + Insurance for external financing = 150 + 15 = $165
Discount rate = R =
7.50%
Present Values (PV)
Year
Cash flows
Discount factor or PV factors = Df = 1/(1+R)^Year
PV of cash flows = Cash flows x Df
0
-$165.00
1.000000
-$165.00
1
$40.00
0.930233
$37.21
2
$40.00
0.865333
$34.61
3
$40.00
0.804961
$32.20
4
$40.00
0.748801
$29.95
5
$40.00
0.696559
$27.86
6
$40.00
0.647962
$25.92
7
$40.00
0.602755
$24.11
8
$40.00
0.560702
$22.43
9
$40.00
0.521583
$20.86
10
$40.00
0.485194
$19.41
Total of PV = NPV in million =
$109.56
NPV = $109.56 million
OR
NPV in USD = $109,563,238.24
Discount rate = R =
7.50%
Present Values (PV)
Year
Cash flows
Discount factor or PV factors = Df = 1/(1+R)^Year
PV of cash flows = Cash flows x Df
0
-$165.00
1.000000
-$165.00
1
$40.00
0.930233
$37.21
2
$40.00
0.865333
$34.61
3
$40.00
0.804961
$32.20
4
$40.00
0.748801
$29.95
5
$40.00
0.696559
$27.86
6
$40.00
0.647962
$25.92
7
$40.00
0.602755
$24.11
8
$40.00
0.560702
$22.43
9
$40.00
0.521583
$20.86
10
$40.00
0.485194
$19.41
Total of PV = NPV in million =
$109.56
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