Question1. You have an opportunity to purchase the Newton Falls Paper mill for $15 million. At present the mill sells standard paper reams and revenues total $5 million per year with fixed costs of $2 million and variable costs of 40% of revenue. The interest rate is 11.64%
1. If you paid the $15 million and operated the mill as it is now, meaning you earned the $5 million per year in revenues what would be your NPV? If negative what would you have to pay to acquire a 0 NPV? I'm stuck on how to find the NPV with the perpetuity. It would be (1 million/ 11.64%)-15 million however it’s not.
Question2. An investment project needs a net investment of $100,000. The project is anticipated to generate annual net cash flows of $28,000 for the next 5 years. The firm's cost of capital is 12%.
Part 1 – Find out the payback period for the project.
Part 2 – Find out the payback period accounting for the present value of future cash flow (that is, Present value computation) should the project be done? After considering present value is the 100,000 investment recovered in 3-4 years, 4-5 years or over 5 years?