A. Suppose the company is considering a potential investment project to add to its portfolio. Calculate the following items:

1. The net present value (NPV) of the project

2. The internal rate of return (IRR) of the project

D E F G H 1 K L M N 0 B 1 Milestone Three: Capital Budgeting Data (fill in YELLOW cells) 2 WACC 6 Initial Outlay CF1 CF2 CF3 CF4 CFS 8 3 Cash Flows (Sales) Operating Costs (excluding Depreciation) Depreciation Rate of 20% 10 Operating Income (EBIT 1 Income Tax (Rate 25%) 2 After Tax EBIT na 13+ Depreciation 14 Cash Flows VI 15 Capital Budgeting Example Set-up ACCEPT Initial investment $65,000,000 REJECT Straight-line Depreciation of 20% Income Tax @25% WACC: use 9% (UPS WACC was about 9.43%) Cash Flow (which in this case are Sales Revenues) are as fotlows: CF1: $50.000.000 CF2: 545,000,000 CF3: 565,500,000 CF4 $55.000.000 CFS: $25,000,000 Operating Coats CF1: $25.500.000 CF2: $25,500,000 $0 16 Select from drop down below: S0.00 ACCEPT NPV CF3: $25,500,000 CF4: $25,500,000 CFS: $25,500,000 IRR #NUN ACCEPT WACC- why do we use WACC rate for new projects? If the project doesn't car more percent than WACC, the corporation should abandon the project and invest money elsewhere. 17 na 18 19 on 10 11 12 13 214 15 26 17 18 19 Initial Investment - always negative. Corporation has to invest money ("lose" it till they recover it via sales) in order to gain future benefit