Capital Budgeting Analysis (30 points): You have been asked to evaluate a potential acquisition of a smaller privately owned competitor. The acquisition candidate produces an EBITDA of 10% of your current EBITDA and is offered to your firm at a price of multiple of 8 times EBITDA. Assume the following: Current debt costs you 8% and you can raise additional debt at this rate today. The loan is to be amortized over 7 years. Current return on equity is 15% Current WACC is 10% Tax rate is 30% (constant) 80% of the purchase price is considered depreciable assets to be depreciated over ten years on a straight-line basis with no residual values. Residual value for this operation is to be 2x current EBITDA in year ten. Create an after-tax cash flow analysis to answer the following: Economic analysis: is this a fundamentally sound investment? Using the tax cash flows and no debt (pure equity), is the prospect a positive NPV using ROE as the hurdle rate? Using the after tax cash flows and the firms WACC, is this project desirable? Explain how you came to this conclusion.

EBITDA	5.6
Acquisition Company Production 10% EBITDA	0.6
Acquisition Price 8 Times EBITDA	4.5
Debt Rate (Given)	8%
Current Return on Equity (Given)	15%
Current WACC (Given)	10%
80% Purchase Price (Given)	3.6
Straight Line Depreciation (10-YR) Per Yr	0.4
Residual Value	1.1
Hurdle Rate (ROE) (Given)	15%
Original Principal	4.5
Loan Term	7
Payments per year	1
Payment	0.9
EBITDA
Net Income Attributable to Firm	3.1
Add: Net income attributable to Non-controlling interest	-0.0
Add: Income Tax Expense	1.3
Earnings Before Tax (EBT)	4.4
Add: Interest expense	-0.2
Earnings Before Interest and Tax (EBIT)	4.2
Add: Depreciation and amortization	1.4
Earnings before Interest, Tax, Depreciation and Amortization (EBITDA)	5.6

Year	Beg Principal	Total Payment	Interest Pay	Principal Pay	Ending Balance
1	4,504,000,000	865,094,096	360,320,000	504,774,096	3,999,225,904
2	3,999,225,904	865,094,096	319,938,072	545,156,024	3,454,069,880
3	3,454,069,880	865,094,096	276,325,590	588,768,506	2,865,301,375
4	2,865,301,375	865,094,096	229,224,110	635,869,986	2,229,431,389
5	2,229,431,389	865,094,096	178,354,511	686,739,585	1,542,691,804
6	1,542,691,804	865,094,096	123,415,344	741,678,752	801,013,052
7	801,013,052	865,094,096	64,081,044	801,013,052	-

Please help to run Iterations with instructions on inputs to excel. Need to figure Goodwill in as well.

	Yr	0	1	2	3	4	5	6	7	8	9	10
All numbers below are made up as an example only)
Purchase Price
EBITDA (no Growth)			0	0	0	0	0	0	0	0	0	0
	Int Exp
	Dep Exp
	Amort Exp
	Gross Profit
	Taxes
	Net Income
After Tax Analysis:
Net Income:
Add: Dep
Add: Amort
Less: Principal
Less: CapEx (assume $0)
After Tax Cash flow=
			The above is the accounting set up for the analysis below
Financial Analysis:
Use purchase price, and after tax cash flows with your required rate of return (which rate? You need to select correct one) to get NPV and IRR answers.
Do you buy? Yes or no?
Perform the above analysis againthis time assume 100% equity (no debt; remove all cash flows due to debt).
Calculate NPV and IRR here; does this answer differ from the above?
	That is, if leverage is the only reason to buy something, is that a good decision?