You have been asked to assess whether it makes sense for CASTEC INC. to invest in a newtelecom investment. The initial investment is expected to be S 60 million and the project isexpected to generate income for the next 10 years, with the income statement below providing ameasure of revenues and expenses for the project.RevenuesCost of Goods SoldOperating ExpensesDepreciation|EBIT|-Interest Expenses|EBTTaxes @ 30%Net Income$28,000,000$12,000,000$6,000,000$5,000,000$5,000,000$2,000,000$3,000,000S 900,000$2,100,000If the cost of capital for CASTEC INC. is 12% should the company invest in this project? Showall your work and justify your recommendation to receive any credit.

Formula for operating cash flow: Operating cash flows = (EBIT*(1-Tax rate))+Depreciation

Answered: You have been asked to assess whether…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 2P

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