A company is studying a project with an expected life of 5 years. The marketing department estimated that the future sales for the next year is 8,000 and continues to increase every year at a constant rate of 10%. The cost of goods sold is around 50% of the sales. The total cost of the new project is 15,000 financed 40% by debt at an interest rate of 8%, and the remaining with owners equity with a cost of 16%.

The project is depreciated over the next 5 years using the linear deprecation method. The working capital is estimated at 20% of the total sales. Finally, the corporate tax rate is 20%.

Requirements:

1. Find the expected sales per year and the cost of goods sold per year of the project (draw a table).

2. Analyze the expected annual net income, also called NOPLAT.

3. Deduce the estimated cash flows generated from the project.

4. Analyze the cost of capital of the project.

5. Using the discounted cash flow method, discuss the value of the company (value of equity) under the condition that the market value of debt is 6,600.