You are considering a geographic expansion into the European market for Canopy Pharmaceuticals. Below are the incremental cash flows for the Canopy project for you to use in your analysis. Assume Canopy's marginal tax rate is 35%, their cost of capital is 15.7 % and an expected growth rate of 5% after 2003. 1998 1999 2000 2001 2002 2003 Net Sales 8,500 15,000 35,500 46,000 52,000 60,000 Cost of Sales 3,100 5,500 13,900 18,000 20,000 24,000 Depreciation 100 100 100 100 100 100 SG&A 3,500 5,410 6,400 5,300 7,200 7,800 R&D 1,100 2,800 4,100 5,400 6,500 7,000 EBIT 700 1,190 11,000 17,200 18,200 21,100 Taxes (35%) 245 417 3,850 6,020 6,370 7,385 Net Income 455 774 7,150 11,180 11,830 13,715 Depreciation 100 100 100 100 100 100 Operating Cash Flows 555 874 7,250 11,280 11,930 13,815 CAPEX (906) (1,394) (900) (800) (300) (200) Net Working Capital (2,030) (780) (2,457) (1,267) (738) (912) Terminal Value Free Cash Flows (2,381) (1,300) 3,893 9,213 10,892 12,703 Given the Free Cask Flows above, calculate the terminal value of the Canopy project in 2003 and the adjusted free cash flow value for 2003. (HINT: Use the Gordon or Growing Perpetuity Model to calculate the terminal value). Calculate the NPV, the IRR and the payback period for the Canopy project and recommend whether Canopy should go forward with the expansion project or not.
You are considering a geographic expansion into the European market for Canopy Pharmaceuticals. Below are the incremental cash flows for the Canopy project for you to use in your analysis. Assume Canopy's marginal tax rate is 35%, their cost of capital is 15.7 % and an expected growth rate of 5% after 2003. 1998 1999 2000 2001 2002 2003 Net Sales 8,500 15,000 35,500 46,000 52,000 60,000 Cost of Sales 3,100 5,500 13,900 18,000 20,000 24,000 Depreciation 100 100 100 100 100 100 SG&A 3,500 5,410 6,400 5,300 7,200 7,800 R&D 1,100 2,800 4,100 5,400 6,500 7,000 EBIT 700 1,190 11,000 17,200 18,200 21,100 Taxes (35%) 245 417 3,850 6,020 6,370 7,385 Net Income 455 774 7,150 11,180 11,830 13,715 Depreciation 100 100 100 100 100 100 Operating Cash Flows 555 874 7,250 11,280 11,930 13,815 CAPEX (906) (1,394) (900) (800) (300) (200) Net Working Capital (2,030) (780) (2,457) (1,267) (738) (912) Terminal Value Free Cash Flows (2,381) (1,300) 3,893 9,213 10,892 12,703 Given the Free Cask Flows above, calculate the terminal value of the Canopy project in 2003 and the adjusted free cash flow value for 2003. (HINT: Use the Gordon or Growing Perpetuity Model to calculate the terminal value). Calculate the NPV, the IRR and the payback period for the Canopy project and recommend whether Canopy should go forward with the expansion project or not.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
- You are considering a geographic expansion into the European market for Canopy Pharmaceuticals. Below are the incremental cash flows for the Canopy project for you to use in your analysis. Assume Canopy's marginal tax rate is 35%, their cost of capital is 15.7 % and an expected growth rate of 5% after 2003.
|
|
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
|
Net Sales |
8,500 |
15,000 |
35,500 |
46,000 |
52,000 |
60,000 |
|
Cost of Sales |
3,100 |
5,500 |
13,900 |
18,000 |
20,000 |
24,000 |
|
|
100 |
100 |
100 |
100 |
100 |
100 |
|
SG&A |
3,500 |
5,410 |
6,400 |
5,300 |
7,200 |
7,800 |
|
R&D |
1,100 |
2,800 |
4,100 |
5,400 |
6,500 |
7,000 |
|
EBIT |
700 |
1,190 |
11,000 |
17,200 |
18,200 |
21,100 |
|
Taxes (35%) |
245 |
417 |
3,850 |
6,020 |
6,370 |
7,385 |
|
Net Income |
455 |
774 |
7,150 |
11,180 |
11,830 |
13,715 |
|
Depreciation |
100 |
100 |
100 |
100 |
100 |
100 |
|
Operating Cash Flows |
555 |
874 |
7,250 |
11,280 |
11,930 |
13,815 |
|
CAPEX |
(906) |
(1,394) |
(900) |
(800) |
(300) |
(200) |
|
Net Working Capital |
(2,030) |
(780) |
(2,457) |
(1,267) |
(738) |
(912) |
|
Terminal Value |
|
|
|
|
|
|
|
Free Cash Flows |
(2,381) |
(1,300) |
3,893 |
9,213 |
10,892 |
12,703 |
- Given the Free Cask Flows above, calculate the terminal value of the Canopy project in 2003 and the adjusted
free cash flow value for 2003. (HINT: Use the Gordon or Growing Perpetuity Model to calculate the terminal value). - Calculate the
NPV , theIRR and the payback period for the Canopy project and recommend whether Canopy should go forward with the expansion project or not.
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