FCE and WACC Review Problems A firm's balance sheets for year-end 2014 and 2015 contain the following data. What is the investment in net working capital for 2015? All items are in millions of S. Change in NWC-$5 2014 2015 Accounts Receivable Inventory Accounts Payable 32 36 26 12 26 2. Fall Tyme, Inc, is considering a new three year expansion project that requires an initial fixed asset investment of $3.9 million. The fixed asset will be depreciated straight line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,650,000 in annual sales, with costs of $840,000. If the tax rate is 35 percent, what is the OCF for this project? oCF $1,631,500 3. In the previous problem, suppose the required return on the project is 12 percent. What is the project's NPV? NPV $18,587.7 4. In the previous problem, suppose the project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $210,000 at the end of the project. What are the free cashflows (FCFs) for this project in years 0, 1,2, and 3, respectively? What is the new NPv?-$4.2 million, $1.6315 million, $1.6315 million, $2.068 million, NPV $0.029279 million 5. The 5Up Corporation's common stock has a beta of 1.05. If the risk free rate is 5.3 percent and the expected return on the market is 12 percent, what is the company's cost of equity capital? 12.335% 6. Seven Manufacturing has a target debt-equity ratio of 0.65. Its cost of equity is 15 percent, and its cost of debt is 9 percent. If the tax rate is 35 percent, what is the company's WACC? 1 1.39%