Does a cement plant expansion create value?
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The prompt
A cement producer in the UAE (fictional, AED millions) earns EBIT (operating profit) of 150 on invested capital of 1,000. Tax is 20 percent (illustrative). It is funded 60 percent by equity, which costs 12 percent, and 40 percent by debt at 6 percent before tax. Management wants to invest another 500 in a new production line. The line is expected to earn a return of 7 percent after tax. Does the company create value today, and would the expansion add to it?
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