The following investment project is submitted to you:
· project: extension of an industrial plant;
· purchase of equipment € 20m;
· setup costs €1.5m;
· useful life 8 years;
- e residual value 0;
- e increase in working capital € 2.5m
The project will result in an increase in EBITDA of € 3m per year, over the 8 years during which the new asset is used. The equipment is depreciated over 5 years. The corporate income tax rate is 40%:
(a) Draw up the cash flow schedule for the project, on the basis of straight-line
depreciation.
(b) Calculate each of the two cases:
· net present value at 10%;
· the internal rate of return of the project.