Calculate NPV/Find the Unknown, business and finance homework help

Question 1

A utility company that currently provides electricity to residents using coal-fired power plants has WACC of 9%. The company’s new CEO is looking into getting into a new project where the company is going to collect highly radioactive material from asteroid in space and will use that material to generate electricity. This is expected to reduce the cost of producing electricity. The initial investment in the project is $640 million. A newly hired Nova graduate has done the following analysis. His analysis contains multiple errors. Identify the errors, correct them, Calculate true NPV assuming that NI forecasts for the years are OK and that there are no relevant cash flows beyond 2022. Recommend a course of action. (Hint: make appropriate assumptions if required.)

2018

2019

2020

2021

2022

EBITDA

300

325

360

380

380

Depreciation

55

55

55

55

55

EBIT

245

270

305

325

325

Interest

45

45

45

45

45

EBT

200

225

260

280

280

Tax

80

90

104

112

112

NI

120

135

156

168

168

Cash Flows (NI + Dep)

175

190

211

223

223

NPV calculation at beginning of 2015

Discount rate

9%

t

CF 

1

0

2

0

3

0

4

175

5

190

6

211

7

223

8

223

PV of FCF

$607.18

NPV =

($32.82)

Recommendation

Reject

(numbers in millions)

Question 2

Given the following information find the unknown and explain the logic in words.

spot rate

180-day forward

1-yr forward

Yuan per USD

4.95

5.12

5.26

USD per Euro

?

1.32

1.3

Rupee per USD

57.44

59.15

59.85

Interest rates

USA

0.02

Europe

0.01

India

0.08

China

0.09

Question 3

Ringon Simpat JV is a joint venture headquartered in Kuala Lumpur between Ringon Pharma and Simpat Research, both US based companies. Each of the two companies own 50% shares in the company. Both the companies are global pharmaceutical companies selling drugs all over the world including Malaysia. Malaya pharma is a startup pharmaceutical company in Kuala Lampur. Given their small size Malaya does not have access to labs and testing facilities. The management of Ringon Simpat JV, all of whom are Malaysians, agree to provide research facilities for Malaya to develop and test new drugs. They also promise to provide any necessary technical know-how to Malaya, as and when needed, so that they can help their country develop and manufacture drugs locally at a lower cost. Assuming that Malaya is actually paying fair rent to JV for use of research facilities do you find any problem in this arrangement? Answer using appropriate financial terminology.