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17. A firm has projected the following financials for a possible project: YEAR 0 1 2 3 4 5 Sales 122,896.00 122,896.00 122,896.00 122,896.00 122,896.00
17. A firm has projected the following financials for a possible project:
YEAR | 0 | 1 | 2 | 3 | 4 | 5 |
---|---|---|---|---|---|---|
Sales | 122,896.00 | 122,896.00 | 122,896.00 | 122,896.00 | 122,896.00 | |
Cost of Goods | 64,416.00 | 64,416.00 | 64,416.00 | 64,416.00 | 64,416.00 | |
S&A | 30,000.00 | 30,000.00 | 30,000.00 | 30,000.00 | 30,000.00 | |
Depreciation | 23,650.20 | 23,650.20 | 23,650.20 | 23,650.20 | 23,650.20 | |
Investment in NWC | 1,073.00 | 531.00 | 531.00 | 531.00 | 531.00 | 531.00 |
Investment in Gross PPE | 118,251.00 |
The firm has a capital structure of 37.00% debt and 63.00% equity. The cost of debt is 8.00%, while the cost of equity is estimated at 14.00%. The tax rate facing the firm is 35.00%. (Assume that you can't recover the final NWC position in year 5. i.e. only consider the change in NWC for each year)
What is the NPV of the project? (Hint: Be careful about rounding the WACC here!)
A firm has projected the following financials for a possible project: The firm has a capital structure of 50% debt and 50% equity. The cost of debt is 9%, while the cost of equity is estimated at 12%. The tax rate facing the firm is 35%. What is the NPV for the project? SOLUTION: The NPV is found by discounting the project cash flows at the WACC. The WACC is found with the following: rWACC=wDxrDx(1T)+wExrErWACC=0.50x9%x(10.35)+0.50x12%=0.08925=8.925%NPV=(1+r)1CF1+(1+r)2CF2+(1+r)3CF3+(1+r)4CF4+(1+r)5CF5+CF0 Where r=rWACC NPV=(1.08925)1$26,000+(1.08925)2$26,000+(1.08925)3$26,000+(1.08925)4$26,000+(1.08925)5$26,000$101,000=$328.04Step by Step Solution
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