ACC351A_Final - here ACC351 Final Page 2 of 5 Neyland 3(40...

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ACC351A – Final Name Refer to the 2008 General Mills annual report.  Your calculations should be based on the  2008 figures.  General Mills is planning to erect a new manufacturing campus in Juarez, Mexico.  The  expected plant cost, including equipment is $750 million.  The plant and equipment are  expected to have a useful life of 10 years and generate savings of $120 million annually  for the life of the project.  The company assumes straight line depreciation over the 10  years and expects to retain the plant.   1. (20%) What is General Mills current WACC?   2. (10%) The CFO is undecided about how to finance the expansion.  If he chooses  to finance by issuing bonds (assuming current average debt rate) or issuing stock,  ACC351 Final Page 1 of 5 Neyland
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which will lower the company’s WACC?  (Write a maximum of 3 sentences 
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Unformatted text preview: here.) ACC351 Final Page 2 of 5 Neyland 3. (40%) Should the project be approved? Compute the following: a. NPV b. IRR c. Payback d. What is the minimum annual cashflow needed to approve the project? e. Using the original cashflow you calculated, what is the maximum WACC the company could have to approve the project? ACC351 Final Page 3 of 5 Neyland 4. (10%) If the company used an accelerated depreciation methodology, such as MACRS to depreciate the equipment in 5 years versus 10 years, would the NPV and IRR improve? (Write a maximum of 3 sentences here.) 5. (20%) What is the likely change to the company’s EPS from this project (excluding any new financing)? ACC351 Final Page 4 of 5 Neyland ACC351 Final Page 5 of 5 Neyland...
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