A. What effect will the purchase of the CX700 have on Illingham's net income over the next 10 years? What effect will the purchase have on Illingham's cash flows?
B. How would a more accelerated depreciation schedule affect earnings? How would it affect cash flows?
C. How would you evaluate the decision to purchase the CX700?
D. Suppose Illingham could use the CX700 to secure a loan of $1,000,000. What factors would you now consider in your decision?
E. Valuation using WACC
a. Suppose Illingham plans to maintain a constant D/E ratio of 0.30 going forward.
b. Estimate the value of the CX700 project using WACC
F. Valuation using APV
a. Suppose instead that the CX700 will be purchased using secured debt (which would not otherwise be issued).
b. Suppose Illingham borrows $1 M at a 6% interest rate.
c. What is your estimate of the value of the project now?