Expansion project? - Essay Prowess

Expansion project?

Express Shopping Centres Inc. is considering expanding into the vacant land next DOOR. This would require an outlay of $7.38 million. It is forecast that the additional complex will GENERATE earnings before tax of $960,000 next year and that these earnings would grow at a rate of 4% per annum into the foreseeable future. Express pays company tax at a rate of 30% and has a real cost of capital of 8.5%. The Reserve Bank of Australia has forecast inflation to be 2.5% over the foreseeable future. What is the NPV of the expansion project?

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