4. (15 points) Problem - FCF, NPV and IRR XYZ Inc is considering an expansion project. The cost of the study has been capitalized and depreciated to O over 3 years on straight line. You are provided with the projected income statements for a project: Year 1 2 3 Revenues $10,000 $11,000 $12,000 - Cost of Goods Sold $4,000 $4,400 $4,800 - Depreciation $4,000 $3,000 $2,000 EBIT $ 2,000 $3,600 $5,200 . The tax rate is 20%. The project requires an initial investment of $11,000. At the end of the economic life of the project (i.e.year 3) the firm will sell the purchased equipment for 2,000 (i.e. the salvage value). The working capital is anticipated to be 10% of revenues, and the working capital investment has to be made at the beginning of each period. In the last period the firm will recover all of the investment in NWC. (6 points) Estimate the free cash flow to the firm for each year. a. 0 1 2 3 0 0 0 Year Capex WC Investment Salvage Revenues - Cost of Goods Sold - Depreciation EBIT EBIT(1-0) + Depreciation = Operating cash flow -Change in NWC FCF Discounted cash flows $10,000 $4,000 $4,000 $ 2,000 $11,000 $4,400 $3,000 $3,600 $12,000 $4,800 $2,000 $5,200 0 b. (2 points) Estimate the payback period (using discounted cash flows) value if the cost of capital is 12%. c. (2 points) Estimate the net present value if the cost of capital is 12%. d. (2 points) Estimate the internal rate of return to investors in the firm