Involves the purchase of a lumber mill operation located in Nova Scotia. You have estimated the initial investment as $1,000,000 and the annual pre-tax cash flow over the next 10 years as $200,000 at which point the operation will be obsolete. If GBEI decides to invest in the lumber mill operation, it will be financed using the same proportions of debt and equity
Involves the purchase of a lumber mill operation located in Nova Scotia. You have estimated the initial investment as $1,000,000 and the annual pre-tax cash flow over the next 10 years as $200,000 at which point the operation will be obsolete. If GBEI decides to invest in the lumber mill operation, it will be financed using the same proportions of debt and equity that GWEI currently uses. You have collected information on a publicly-traded lumber products company whose primary line of business is similar to GBEI’s lumber mill operation – this has led you to recommend a discount rate of 11.27% for this investment. Assume straight line
1. Calculate the NPV, Payback Period, and Profitability Index of the lumber mill operation.
Step by step
Solved in 5 steps
