Homework Answers
| First we have to calculated weighted average cost of capital | ||
| Cost of Debt | 8.00% | |
| Less: Tax effect@30% | 2.40% | |
| Net cost of Debt | 5.60% | |
| Cost of Equity | 12% | |
| Weighted Average cost of capital: | ||
| (Cost of equity * Equity weight) + (Cost of Debt*Debt weight) | ||
| (12*0.60)+(5.60*0.40) | ||
| 9.44 | i.e. 9.44% |
| Calculation of Cash flow from operation | |||||
| Year | 1 | 2 | 3 | 4 | 5 |
| Sales | 1,50,000 | 1,50,000 | 1,50,000 | 1,50,000 | 1,50,000 |
| Cost of Goods Sold | 75,000 | 75,000 | 75,000 | 75,000 | 75,000 |
| S&A | 30,000 | 30,000 | 30,000 | 30,000 | 30,000 |
| Depreciation | 30,000 | 30,000 | 30,000 | 30,000 | 30,000 |
| Profit before tax | 15,000 | 15,000 | 15,000 | 15,000 | 15,000 |
| Tax @30% | 4,500 | 4,500 | 4,500 | 4,500 | 4,500 |
| Profit after tax | 10,500 | 10,500 | 10,500 | 10,500 | 10,500 |
| Add back depreciation | 30,000 | 30,000 | 30,000 | 30,000 | 30,000 |
| Cash Flow from operation | 40,500 | 40,500 | 40,500 | 40,500 | 40,500 |
|
Calculation of NPV |
||||||
| Year | Investment in Gross PPE | Investment in NWC | Cash Flow from operation | Net Cash Flow | PV factor | Net Cash Flow |
| 0 | -150000 | -1000 | - | -1,51,000 | 1.00 | -1,51,000 |
| 1 | 0 | -500 | 40,500 | 40,000 | 0.91 | 36,550 |
| 2 | 0 | -500 | 40,500 | 40,000 | 0.83 | 33,397 |
| 3 | 0 | -500 | 40,500 | 40,000 | 0.76 | 30,516 |
| 4 | 0 | -500 | 40,500 | 40,000 | 0.70 | 27,884 |
| 5 | 0 | -500 | 40,500 | 40,000 | 0.64 | 25,479 |
| NPV | 2,826 | |||||
| Therefore the NPV for this project will be $2826 |
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Consider the following project for Dawg Incorporated: YEAR 0 1 2 3 4 5 Sales $150,000...
Consider the following project for Dawg Incorporated: YEAR 0 1 2 3 4 5 Sales $150,000...
Consider the following project for Dawg Incorporated: YEAR 0 1 2 3 4 5 Sales $150,000 $150,000 $150,000 $150,000 $150,000 Cost of Goods $70,000 $70,000 $70,000 $70,000 $70,000 S&A $30,000 $30,000 $30,000 $30,000 $30,000 Depreciation $30,000 $30,000 $30,000 $30,000 $30,000 Investment in NWC $1,000 $500 $500 $500 $500 $500 Investment in Gross PPE $150,000 The project will last 5 years and has the same risk as the typical Dawg Incorporated project. The firm has a capital structure of 40.00% debt and...
Consider the following project for Dawg Incorporated: YEAR 0 1 2 3 4 5 Sales $150,000...
Consider the following project for Dawg Incorporated: YEAR 0 1 2 3 4 5 Sales $150,000 $150,000 $150,000 $150,000 $150,000 Cost of Goods $65,000 $65,000 $65,000 $65,000 $65,000 S&A $30,000 $30,000 $30,000 $30,000 $30,000 Depreciation $30,000 $30,000 $30,000 $30,000 $30,000 Investment in NWC $1,000 $500 $500 $500 $500 $500 Investment in Gross PPE $150,000 The project will last 5 years and has the same risk as the typical Dawg Incorporated project. The firm has a capital structure of 30.00% debt and...
Consider the following project for Dawg Incorporated: YEAR 0 1 2 3 4 5 Sales $150,000...
Consider the following project for Dawg Incorporated: YEAR 0 1 2 3 4 5 Sales $150,000 $150,000 $150,000 $150,000 $150,000 Cost of Goods $65,000 $65,000 $65,000 $65,000 $65,000 S&A $30,000 $30,000 $30,000 $30,000 $30,000 Depreciation $30,000 $30,000 $30,000 $30,000 $30,000 Investment in NWC $1,000 $500 $500 $500 $500 $500 Investment in Gross PPE $150,000 The project will last 5 years and has the same risk as the typical Dawg Incorporated project. The firm has a capital structure of 30.00% debt and...
A firm has projected the following financials for a possible project: YEAR 0 1 2 3...
A firm has projected the following financials for a possible project: YEAR 0 1 2 3 4 5 Sales 129,409.00 129,409.00 129,409.00 129,409.00 129,409.00 Cost of Goods 69,540.00 69,540.00 69,540.00 69,540.00 69,540.00 S&A 30,000.00 30,000.00 30,000.00 30,000.00 30,000.00 Depreciation 20,465.20 20,465.20 20,465.20 20,465.20 20,465.20 Investment in NWC 1,014.00 582.00 582.00 582.00 582.00 582.00 Investment in Gross PPE 102,326.00 The firm has a capital structure of 41.00% debt and 59.00% equity. The cost of debt is 9.00%, while the cost of...
A firm has projected the following financials for a possible project: 3 5 2 YEAR 0...
A firm has projected the following financials for a possible project: 3 5 2 YEAR 0 1 134,994.00 134,994.00 134,994.00 134,994.00 Sales 134,994.00 62,673.00 62,673.00 62,673.00 62,673.00 Cost of Goods 62,673.00 30,000.00 30,000.00 30,000.00 30,000.00 S&A 30,000.00 21,318.60 21,318.60 21,318.60 21,318.60 21,318.60 Depreciation 558.00 558.00 558.00 558.00 558.00 1,044.00 Investment in NWC Investment in Gross PPE 106,593.00 The firm has a capital structure of 36.00% debt and 64.00% equity. The cost of debt is 10.00%, while the cost of equity...
A firm has projected the following financials for a possible project: YEAR 0 1 2 3...
A firm has projected the following financials for a possible project: YEAR 0 1 2 3 5 4 Sales 134,994.00 134,994.00 134,994.00 134,994.00 134,994.00 Cost of Goods 62,673.00 62,673.00 62,673.00 62,673,00 62,673.00 S&A 30,000.00 30,000.00 30,000.00 30,000.00 30,000.00 Depreciation 21,318.60 21,318.60 21,318.60 21,318.60 21,318.60 Investment in NWC 1,044.00 558.00 558,00 558.00 558.00 558.00 Investment in Gross PPE 106,593.00 The firm has a capital structure of 36.00% debt and 64.00% equity. The cost of debt is 10.00%, while the cost of...
FCF for the following: Year 0: Year 1: Year 2: Year 3: Year 4: Year 5:...
FCF
for the following:
Year 0:
Year 1:
Year 2:
Year 3:
Year 4:
Year 5:
NPV?
PI?
IRR?
(Related to Checkpoint 12.1) (Comprehensive problem calculating project cash flows, NPV, PI, and IRR) Traid Winds Corporation, a firm in the 36 percent marginal tax bracket with a required rate of return or discount rate of 12 percent, is considering a new project. This project involves the introduction of a new product. The project is expected to last 5 years and...
FCF for Year 0, 1, 2, 3, 4 and 5 NPV? PI? IRR? (Related to Checkpoint...
FCF
for Year 0, 1, 2, 3, 4 and 5
NPV?
PI?
IRR?
(Related to Checkpoint 12.1) (Comprehensive problem-calculating project cash flows, NPV, PI, and IRR) Traid Winds Corporation, a firm in the 31 percent marginal tax bracket with a required rate of return or discount rate of 11 percent, is considering a new project. This project involves the introduction of a new product. The project is expected to last 5 years and then, because this is somewhat of a...
3. Consider Table 2 Table 2 Year 3 Year 4 Cash flow Year 2 Year 0 Year 1 Cash flovw Cash flow Cash flow 70 Cash flow Pr...
3. Consider Table 2 Table 2 Year 3 Year 4 Cash flow Year 2 Year 0 Year 1 Cash flovw Cash flow Cash flow 70 Cash flow Project 80 70 30 -150 0.24 Interest Tax Shield 0.75 (a)Consider Table 2. Calculate the net present value of the project assuming it is all-equity financed. The required return on unlevered equity is 15%. (b)Consider Table 2. Assume for now that the project is financed using equal parts debt and equity. The cost...
Year 1 Year 2 Year 3 Year 4 Unit sales 4,800 5,100 5,000 5,120 Sales price...
Year 1 Year 2 Year 3 Year 4 Unit sales 4,800 5,100 5,000 5,120 Sales price $22.33 $23.45 $23.85 $24.45 Variable cost per unit $9.45 $10.85 $11.95 $12.00 Fixed operating costs $32,500 $33,450 $34,950 $34,875 This project will require an investment of $15,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at t = 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage...
A firm has projected the following financials for a possible project: 3 5 2 YEAR 0 1 134,994.00 134,994.00 134,994.00 134,994.00 Sales 134,994.00 62,673.00 62,673.00 62,673.00 62,673.00 Cost of Goods 62,673.00 30,000.00 30,000.00 30,000.00 30,000.00 S&A 30,000.00 21,318.60 21,318.60 21,318.60 21,318.60 21,318.60 Depreciation 558.00 558.00 558.00 558.00 558.00 1,044.00 Investment in NWC Investment in Gross PPE 106,593.00 The firm has a capital structure of 36.00% debt and 64.00% equity. The cost of debt is 10.00%, while the cost of equity...
A firm has projected the following financials for a possible project: YEAR 0 1 2 3 5 4 Sales 134,994.00 134,994.00 134,994.00 134,994.00 134,994.00 Cost of Goods 62,673.00 62,673.00 62,673.00 62,673,00 62,673.00 S&A 30,000.00 30,000.00 30,000.00 30,000.00 30,000.00 Depreciation 21,318.60 21,318.60 21,318.60 21,318.60 21,318.60 Investment in NWC 1,044.00 558.00 558,00 558.00 558.00 558.00 Investment in Gross PPE 106,593.00 The firm has a capital structure of 36.00% debt and 64.00% equity. The cost of debt is 10.00%, while the cost of...
FCF
for the following:
Year 0:
Year 1:
Year 2:
Year 3:
Year 4:
Year 5:
NPV?
PI?
IRR?
(Related to Checkpoint 12.1) (Comprehensive problem calculating project cash flows, NPV, PI, and IRR) Traid Winds Corporation, a firm in the 36 percent marginal tax bracket with a required rate of return or discount rate of 12 percent, is considering a new project. This project involves the introduction of a new product. The project is expected to last 5 years and...
FCF
for Year 0, 1, 2, 3, 4 and 5
NPV?
PI?
IRR?
(Related to Checkpoint 12.1) (Comprehensive problem-calculating project cash flows, NPV, PI, and IRR) Traid Winds Corporation, a firm in the 31 percent marginal tax bracket with a required rate of return or discount rate of 11 percent, is considering a new project. This project involves the introduction of a new product. The project is expected to last 5 years and then, because this is somewhat of a...
3. Consider Table 2 Table 2 Year 3 Year 4 Cash flow Year 2 Year 0 Year 1 Cash flovw Cash flow Cash flow 70 Cash flow Project 80 70 30 -150 0.24 Interest Tax Shield 0.75 (a)Consider Table 2. Calculate the net present value of the project assuming it is all-equity financed. The required return on unlevered equity is 15%. (b)Consider Table 2. Assume for now that the project is financed using equal parts debt and equity. The cost...
Year 1 Year 2 Year 3 Year 4 Unit sales 4,800 5,100 5,000 5,120 Sales price $22.33 $23.45 $23.85 $24.45 Variable cost per unit $9.45 $10.85 $11.95 $12.00 Fixed operating costs $32,500 $33,450 $34,950 $34,875 This project will require an investment of $15,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at t = 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage...
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