Imperial Motors is considering producing its popular Rooster model in China. This will involve an initial investment of CNY 4.9 billion.The plant will start production after one year. It is expected to last for five years and have a salvage value at the end of this period ofCNY 509 million in real terms. The plant will produce 100,000 cars a year. The firm anticipates that in the first year, it will be able to selleach car for CNY 74,000, and thereafter the price is expected to increase by 4% a year. Raw materials for each car are forecasted tocost CNY 27,000 in the first year, and these costs are predicted to increase by 3% annually. Total labor costs for the plant are expectedto be CNY 2.0 billion in the first year and thereafter will increase by 7% a year. The land on which the plant is built can be rented forfive years at a fixed cost of CNY 309 million a year payable at the beginning of each year, Imperial's discount rate for this type ofproject is 10% (nominal). The expected rate of inflation is 5%. The plant can be depreciated straight-line over the five-year period, andprofits will be taxed at 25%. Assume all cash flows occur at the end of each year except where otherwise stated. What is the NPV ofthe project plant?Note: Do not round your intermediate calculations. Enter your answer in millions rounded to the nearest whole number.NPV

Name: Imperial Motors is considering producing its popular Rooster model in
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Description: Imperial Motors is considering producing its popular Rooster model in China. This will involve an initial investment of CNY 4.9 billion.The plant will start production after one year. It is expected to last for five years and have a salvage value at

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profits will be taxed at 25%. Assume all cash flows occur at the end of each year except where otherwise stated. What is the NPV of the project plant? Note: Do not round your intermediate calculations. Enter your answer in millions rounded to the nearest whole number. NPV

profits will be taxed at 25%. Assume all cash flows occur at the end of each year except where otherwise stated. What is the NPV of the project plant? Note: Do not round your intermediate calculations. Enter your answer in millions rounded to the nearest whole number. NPV

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 8P: The Rodriguez Company is considering an average-risk investment in a mineral water spring project...

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The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
Imperial Motors is considering producing its popular Rooster model in China. This will involve an initial investment of CNY 5.3 billion. The plant will start production after one year. It is expected to last for five years and have a salvage value at the end of this period of CNY 513 million in real terms. The plant will produce 100,000 cars a year. The firm anticipates that in the first year, it will be able to sell each car for CNY 78,000, and thereafter the price is expected to increase by 4% a year. Raw materials for each car are forecasted to cost CNY 31,000 in the first year, and these costs are predicted to increase by 3% annually. Total labor costs for the plant are expected to be CNY 2.4 billion in the first year and thereafter will increase by 7% a year. The land on which the plant is built can be rented for five years at a fixed cost of CNY 313 million a year payable at the beginning of each year. Imperial’s discount rate for this type of project is 10% (nominal). The…
Imperial Motors is considering producing its popular Rooster model in China. This will involve an initial investment of CNY 4.9 billion. The plant will start production after one year. It is expected to last for five years and have a salvage value at the end of this period of CNY 509 million in real terms. The plant will produce 100,000 cars a year. The firm anticipates that in the first year, it will be able to sell each car for CNY 74,000, and thereafter the price is expected to increase by 4% a year. Raw materials for each car are forecasted to cost CNY 27,000 in the first year, and these costs are predicted to increase by 3% annually. Total labor costs for the plant are expected to be CNY 2.0 billion in the first year and thereafter will increase by 7% a year. The land on which the plant is built can be rented for five years at a fixed cost of CNY 309 million a year payable at the beginning of each year. Imperial's discount rate for this type of project is 10% (nominal). The…
Micheal’s Machinery is a German multinational manufacturing company. Currently, Micheal’s financial planners are considering undertaking a 1-year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of $2000 and a cash inflow the following year of $2400. Micheal’s estimates that its risk-adjusted cost of capital is 12%. Currently, 1 U.S. dollar will buy 0.7 Germany. In addition, 1-year risk-free securities in the United States are yielding 6.5%, while similar securities in Germany’s are yielding 4.5%. If this project was instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value and rate of return generated by this project? Round your answers to two decimal places. What is the expected forward exchange rate 1 year from now? Round your answer to two decimal places. If Micheal undertakes the project, what is the net present value and rate of return of…
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