Project #77251 - finance

 

lThe ABC Co. is considering expanding its production capacity by 30%.  The expansion will require $20 million initially.  The net cash flow from this expansion is $4 million for the first year.  The net cash flows are expected to grow at a rate of 5% each year for 4 years, but then slow to a 3% growth thereafter.  The ABC Co. estimates that the cost of capital (i.e., required return) for this expansion is 8%.

lTask: write a report answering (1) should ABC Co. expand?  Why?  (2) If the market interest rate increases and thus the cost of capital for this expansion increases to 12%, would your recommendation change?

l

 

Subject Business
Due By (Pacific Time) 07/23/2015 07:14 pm
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