Disaster had struck on the night of 12/10/23 wherein malware all but wiped out the work of the analysts. Sundar needed to repare a financial analysis of the project to present the Board with recommendations. All the staff had already left for their unual vacation and Sundar was working alone. Sundar quickly reached the office and managed to salvage what was left of the excel spreadsheet prepared for the presentation. What follows is some basic information that Sundar knew and was able to retrieve about the project. PSUWCs existing plant has excess capacity, in a fully depreciated building, to install and run the new equipment to produce the new Designer Eyewear line. Due to relatively rapid advances in technology, the project was expected to be discontinued in four years. The new Designer Eyewear was expected to sell for $116 per unit and had projected sales of 4700 units in the first year, with a projected (Most-Likely scenario) 25.0% growth rate per year for subsequent years. A total investment of $744,000 for new equipment was required. The equipment had fixed mainienance contracts of $311,845 per year with a salvage value of $ 126,185 and variable costs were 8% of revenues. Sundar also needed to consider both the Best-Case and Worst-Case scenarios in the analysis with growth rates of 35.00% and 2.50% respectively. The new equipment would be depreciated to zero using straight line depreciation. The new project required an increase in working capital of $240,080 and $40,814 of this increase would be offset with accounts payable. PSUWC currently has 1095000 shares of stock outstanding at a current price of $85.00. Even though the company has outstunding stock, it is not publicly traded and therefore there is no publicly available financial information. However, after inalysis management believes that its equity beta is 1.55 . The company also has 97000 bonds outstanding, with a current price of $976.00. The bonds pay interest semi-annually at a coupon rate of 6.90%. The bonds have a par value of $1,000 and will mature in 13 years. The average corporate tax rate was 34%. Managernent believes the SAP 500 is a reasonable proxy for the market portfolio. Therefore, the cost of equity is calculated using the company's equity beta and the market risk premium based on the S\&P 500 annual expected rate of return - Sundar would calculate the monthly expected market return using 5 years of past monthly price data available in the worksheet Marketdata. This would then be multiplied by 12 to estimate the annual expectod rate. Sundar remembered that if the expected rate of return for the market was too low, too high, or negative, a forward looking rate of an historical average of about 9.5% would have to be used, as the calculated value for the current 5 -year period may not be representative of the future. Sundar The company also has 97000 bonds outstanding, with a current price of $976.00. The bonds pay interest semi-annually at a coupon rate of 6.90%. The bonds have a par value of $1,000 and will mature in 13 years. The average corporate tax rate was 34%. Management believes the S\&P 500 is a reasonable proxy for the market portfolio. Therefore, the cost of equity is calculated using the company's equity beta and the market risk premium based on the S\&P 500 annual expected rate of return - Sundar would calculate the monthly expected market return using 5 years of past monthly price data available in the worksheet Marketdata. This would then be multiplied by 12 to estimate the annual expected rate. Sundar remembered that if the expected rate of return for the market was too low, too high, or negative, a forward looking rate of an historical average of about 9.5% would have to be used, as the calculated value for the current 5 -year period may not be representative of the future. Sundar would consider a E(Rm) between 812% acceptable. Sundar would calculate the market risk premium: E(Rm) - Rf from the previous calculations using the risk-free rate data available in the worksheet Marketdata. Sundar noted that the risk-free rate was on an annual basis. Sundar needed to calculate the rate at which the project would have to be discounted to calculate the Net Present Value (NPV) of the proposed project based on the decision of raising capital and the current capital market environment. This discount rate, the WACC, would obviously influence the NPV and could affect the decision of whether to accept or reject the pryiect. Thankfully, all the information needed to calculate this was available. Sundar needed to clearly show all the calculations and sources for all parameter estimates used in the calculation of the WACC (and ultimately the NPV). Gathering all the available information, Sundar got a large cup of extra strong coffee and sat down to work on the development of the Capital Budgeting project model. The correct recommendation to the board was critical to the future growth of the firm! Sundar appreciated the detailed step by step instructions on the Worksheet 0 .Case Instructions - Luckily they were still available!!. \begin{tabular}{|c|c|c|c|c|c|c|c|} \hline 4 & & & \pm & Parameters & & & \\ \hline154 & Fesengir Me of projed in yrurs. & 4 & & Markif Valer efEquing & & I of Sharrioghtanting & \\ \hline6B & Frice of Ner Fevipmint & 744,050.00 & & Werkert Valae of Dete & & & \\ \hline 6 & Chense is NWC & & & Tetal Mtarkat Valat & 5 & Mtarket Price af thadt & 97600 \\ \hline 7 & Fised Costs & 111,44500 & & Weight at Iquay & & Market Frike of Sleck & ss00 \\ \hline 8 & Variahle Cense (S of Revene) & is & & Weiphe af Detst & & & - \\ \hline 9 & Salveze value of Siew Equipener & 125,185.00 & & LiR-1 & & & \\ \hline 10 & Mlarginal Tax Hate & 3400ms & z & & & Gand ho Phanilas forje & \\ \hline 11 & First Vear Unin Salin & 4700 & & p. & & Yeen no Matswery & is \\ \hline 12 & Sales Grewte Fair. & 25.05% & & Ceat of Equary ins & & PMT & \\ \hline 13 & Unit Sale Price & 11600 & & Cent ef Drising) & & n & \\ \hline 14 & Wirat Year Reversor & 545,200,00 & & Anectrox ceat of Dat & & Eogerveriry & \\ \hline 15 & & & & WACE & & Bofontar Mm:2 & \\ \hline 16. & & & & Nete Cult C.11 and C22 inder & ade Be ininul (iodes & & \\ \hline 17 & + & & & Columin o through 6 o & ofe the aptratiog ets & th nowe. & \\ \hline 18 & Sprradshet fer Attermining Canh ) & Pows & & Cris cus-cite ciatsia & & han: & \\ \hline 19 & Timesinc: & Vear & 9 & 1 & 2 & 3 & 4 \\ \hline 20 & 11. Net Investanent Outiay = Initial & C. & - & & & & \\ \hline 21 & & Hive er Equipmest & (744000002) & & & in & \\ \hline 22 & & Cunke in vac. & & & & & \\ \hline 23 & III. Cask Dews treen Operatians & & & & & & \\ \hline 24 & Revrnue Genaration & & & & & & \\ \hline 25 & & Dearsula & & & & & \\ \hline 25 & & Unea Sale hise & & 11602 & & & \\ \hline 27 & & Hevipess & & 3450000 & & & \\ \hline 28 & Casts & & & & & & \\ \hline 29 & & Varahile Cous: & & & & & \\ \hline 30 & & haed Cods & & & & & \\ \hline 31 & & Depreciatien & & & & & \\ \hline in & & Faniegu hefive Taus & & & & & \\ \hline 33 & & Tou & & & & & \\ \hline 14 & & Nectopone & & & & & \\ \hline 35 & & Doprecities & & & & & \\ \hline 38 & a & Net epcrine CF. & & & & & \\ \hline \end{tabular}