You are a banker to Livingstone Thompson Limited, a textile manufacturing company. Livingstone Thompson Ltd. is planning to establish a new factory overseas. Livingstone Thompson Ltd. have told you that the factory will run for six years and then be sold to a local entity. The Finance Department of Livingstone Thompson Ltd. has estimated the following yearly cash flows:
Year
Cash Flow (£)
0
-30,000,000
1
8,000,000
2
3
4
5
6
14,000,000
The Financial Manager of Livingstone Thompson Ltd. has decided that the company’s cost of capital of 15% is an appropriate hurdle rate for this project and informed you who will be providing the finance.
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