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Calculate the NPV for Project Pro V1 (Hint: before you ask me about the discount rate, I had you calculate WACC in part b for

  1. Calculate the NPV for Project Pro V1 (Hint: before you ask me about the discount rate, I had you calculate WACC in part b for a reason). Do you accept the project based on NPV? Briefly explain your answer. (10 points)
  2. Define AND Explain the purpose of BOTH scenario analysis and sensitivity analysis in making capital budgeting decisions. (10 points)
  3. We stated in class that NPV always gives you the correct go/no go decision for a project. Why then should you examine other ratios? Give an example where one of these other ratios might change your decision on a project. (6 points)

  1. ABC, Inc.

    Cash

    $140,000

    Accounts Payable

    $184,000

    Accounts Receivable

    $200,000

    Notes Payable

    $75,000

    Inventory

    $640,000

    Long-Term Debt

    $302,500

    Fixed Assets

    $413,000

    Equity

    $831,500

    Total Assets

    $1,393,000

    Total Liabilities and Equity

    $1,393,000

    Sales

    $860,000

    Dividend Payout

    40.00%

    Cost of Goods Sold

    $430,000

    Dividend per Share

    $2.00

    Selling & Admin. Expenses

    $250,000

    Price of Stock Today

    $39.50

    EBIT

    $180,000

    Beta

    1.3335

    Interest Expense

    $80,000

    Risk Free

    2.00%

    Taxable Income

    $100,000

    Risk Premium

    6.00%

    Taxes 35%

    $35,000

    Coupon Rate

    4.00%

    Net Income

    $65,000

    Tax Rate

    35.00%

    Par Value

    $25,000

    Project Pro V1

    Cash Flows

    Time 0

    -$250,000

    Year 1

    $80,000

    Year 2

    $90,000

    Year 3

    $100,000

    Year 4

    $110,000

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