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Homework 11 Solution 2010

# Homework 11 Solution 2010 - Determine the NPV and IRR of...

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Maximum Score Step 1 200 Step 2 200 Step 3 200 Sensitivities 400 Total 1000 Determine the NPV and IRR of the investment outlined in the "Given I requested, then copy your worksheet from Step 1 to Step 2 and then worked as you choose, but Index Cells are recommended

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Corrected Information". Work the solution in Steps as Step 2 to Step 3 etc. The sensitivities can we
Oxygen Delignification Example Annual Tons 650,000 Current Sequence DoEo+pD Current Cost per Ton \$34.75 Proposed Sequence ODoEo+pD Proposed Cost per Ton \$26.00 Annual Savings \$3,791,667 without depreciation Initial Capital Cost \$25,000,000 Spending Schedule 0% in Year -1 Future Maintenance Capital 2% of original investment Project Life 10 years Terminal Value 5 x Year 10 EBITDA Tax 35% (negative tax okay) Discount Rate 12%

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Savings per Ton \$5.83
Step 1 - Depreciation and Capital Investment 200 Points Year Capital Investment Annual Depreciation -1 \$- \$- 0 \$25,000,000 \$3,572,500 1 \$500,000 \$6,193,950 2 \$500,000 \$4,566,400 3 \$500,000 \$3,403,850 4 \$500,000 \$2,576,300 5 \$500,000 \$2,618,450 6 \$500,000 \$2,665,550 7 \$500,000 \$1,592,700 8 \$500,000 \$500,000 9 \$500,000 \$500,000 10 \$500,000 \$500,000 Check \$30,000,000 \$28,689,700 Tons per Year Base Case Annual Cost Proposed Case Annual Cost Bleaching Cost

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Bleaching Cos Fre Free Cas
Project Year -1 0 1 Asset Value preciation Factors -> 14.29% 24.49% \$- \$21,427,500 \$3,572,500 \$6,122,500 \$15,733,550 \$71,450 \$11,667,150 \$8,763,300 \$6,687,000 \$4,568,550 \$2,403,000 \$1,310,300 \$1,310,300 \$1,310,300 \$1,310,300 \$1,310,300 Depreciation \$3,572,500 \$6,193,950 -1 0 1 650,000 650,000 \$22,587,500 \$22,587,500 \$16,900,000 \$16,900,000 t Savings, \$ per Year \$5,687,500 \$5,687,500

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st Savings, \$ per Ton \$8.75 \$8.75 Incremental EBIT \$2,115,000 \$(506,450) Incremental EBITDA \$5,687,500 \$5,687,500 Tax at 35% \$740,250
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