Balance Sheet Assets: Liabilities: Current Assets $995,000 Accounts Payable $300,000 Notes Payable $700,000 Fixed Assets $3,000,000 Other Current Liabilities $195,000 Bonds Payable $1,200,000 Total Liabilities $2,395,000 Equity $1,600,000 Total Assets: $3,995,000 $3,995,000

Current Market Information: 700 Bonds - $1,000 20 years, 10 % stated rate, issued 8 years ago - currently selling at .97 500 Bonds - $1,000, 10 years, 15% stated rate, issued 3 years ago - currently selling at 1.05 100,000 shares of common stock - currently selling for $21.00 per share. Financial Analysis: b = 1.15, RM = 22% RRF = 2.5% Tax Rate = 40%

Lender Requirements Funds will only be distributed in even amounts of $50,000. (50,000, 100,000, 150,000, etc.)

If AFN > $200,000 then the Pre-tax Cost of debt will be 15%; otherwise, it will be 18%.

Calculate the following:

1. AFN analysis for project.
2. WACC for project
3. Cash Flow analysis for project; and
4. NPV for project

Term: 9 Years

Outlay:$1,500,000 for Equipment, depreciable over 10 years, salvage value $160,000

$600,000 lost opportunity with an existing vendor

$250,000 required NWC recoverable in Year 9

$250,000 required in Year 5 to repair and maintain equipment

In the first year, sales will increase $1,950,000. Sales are currently $14,000,000. The current profit

Margin is 30% and the payout ratio is 55%. After Year 1, it is likely that sales will grow 7% per year;

And Cost Of Goods Sold will grow by 2% per year. The company will need to borrow any funds

identified through the AFN analysis.

Best Case: After Year 1, sales will increase 8% per year. The assumption regarding Cost of Goods Sold would increase 2% per year.

Worst Case:After Year 1, sales would increase 2% per year and Cost of Goods Sold would increase 3% per year.