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5. Sushi Corp. is evaluating a new project. The projected cash flows of the project (including financing) are as follows: 0 1 2 3 4
5. Sushi Corp. is evaluating a new project. The projected cash flows of the project (including financing) are as follows: 0 1 2 3 4 EBIT 10 10 10 10 Interest (5%) -4.0 -4.0 -3.0 -2.0 Earnings Before Taxes 6.0 6.0 7.0 8.0 Taxes (40%) -2.4 -2.4 -2.8 -3.2 Net Income 3.6 3.6 4.2 4.8 Depreciation 25.0 25.0 25.0 25.0 CAPEX -80.0 Additions to NWC -20.0 20.0 Sushi Corp. has an equity cost of capital of 11%, a debt-equity ratio of 0.20, and a cost of debt of 5%. The risk of this project is similar to Sushi Corp's current operations. However, because the leverage of this project is significantly different than the historical debt-equity ratio of 0.20, you realize that the best approach to value this project is the APV method. a. What are the FCF's of the project? b. What is the PV of the interest tax shield associated with this project? C. What is the best estimate of the project's value from the information given above
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