The Graphite costs are taken as zero since there is no utilization of graphite in the newer technology. Also the capital expenditures for first year are oaken as 2. 5 million $(the cost of project). Now, the McCann plant in Collusive is valued using discounted cash flow assuming the plant would operate using new replaced laminate electrodes when they become available. In this project, it is founded out that the Net present value is positive suggesting the project is profitable if $2. Man of laminate electrodes is included in the overall $man deal.
Calculations of Beta The systematic risk of the project could be the risk of the production of sodium chlorate in the industry. Therefore, we calculate beta of the project based on the beta of the sodium chlorate industry. The beta of Brunswick and Southern will be used to calculate the Beta UN-levered for the firm because the two firms purely produce sodium chlorate. Their Beta will be first unleavened. Then weighted average of those UN-levered Betas will be used to calculate the levered beta of the firm.
Debt/Equity ratio For calculating levered Beta we take Dixon target capital structure (DIE ratio of 35%). Financing by the debt package will temporarily increase Dioxins DIE ratio to . 47. But we take . 35 as the DIE ratio for calculation as the company will ensure that it maintains its target DIE ratio in the long run. Monte Carlo Analysis Monte Carlo analysis is used to gauge the sensitivity of free cash flows on the Net present value of the project. This is used to simulate various sources of uncertainty inherent in the cash flows.
