Ford Motors expects a new hybrid-engine project to produce incremental cash flows of $50 million each year and expects these to grow at 3% each year. The upfront project costs are $380 million and Ford’s weighted average cost of capital is 8%. If the issuance costs for external finances are $10 million, what is the net present value (NPV) of the project?
A) $549 million
B) $671 million
C) $641 million
D) $610 million
A cost-saving project on an aircraft manufacturing process generates savings of $100,000 per year. Your boss wants you to calculate the present worth of these savings over a 5-year period at a compound interest rate of 12% per year. Assume that the process generates savings every year starting in year 1 and continuing to year 5.
a. $176,230
b. $635,280
c. $379,080
d. $360,480
An investment is expected to pay nothing for 5 years, then will pay $14,000 per year for 4 years. If your required rate of return is 6%, what is the maximum you should be willing to pay for this investment?
A firm is considering investing in a new project with an upfront cost of $300 million. The project will generate an incremental free cash flow of $50 million in the first year and this cash flow is expected to grow at an annual rate of 4% forever. If the firm’s WACC is 11% what is the value of this project?
A) $450.0 million
B) $714.3 million
C) $750.0 million
D) $414.3 million
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