FINA 3000 Project Instructions

This is an individual project. You may work together to discuss the project, but your write-up must be unique.

This project is due at 11:59pm on November 23rd. The project should be submitted electronically to the Individual Project folder provided on D2L.

Write in the first person present. "I find that the company is overpriced." Be sure to document your assumptions.

Grammar and spelling errors can result in a lower grade

Turn in your analysis as follows:

Page 1: Title Page.

Include your name, the date, and the title of your project.

Page 2: Your analysis in words.

Take one page to introduce the project and justify your recommendation. The spreadsheets you create are not your analysis, but you should refer to the spreadsheets ("as I show on exhibit A .."). This section should be long enough to cover the topic, but short enough to be interesting. Think like an attorney and build your case.

Excel Spreadsheet as a separate file.

This is an Excel project. All values must be calculated in the spreadsheet. Your calculator should not be used at all (except perhaps to verify your Excel formulas). A change in any one input must result in a change in the NPV, IRR, MIRR, etc. Do your WACC calculations on a separate worksheet.

The Scenario

Your company is considering spending $3 billion to purchase equipment to build a spaceship to Mars. The equipment is depreciated straight-line over 8 years, and it costs $100 million to install. Assume equipment is fully installed within the next year.

Your initial price point for an individual to fly to round-trip to Mars is $150,000 and your projected sales volume is 85,000 seats. Fixed costs are $328,000,000 and each trip costs $120,000 in variable costs. Subsequent years projections are shown on the next page.

Your marginal tax rate is 26%. Assume that this is one of many projects for the company. No special tax treatments are required for years of negative earnings.

An initial working capital investment of $270,000,000 is required.

You will need to upgrade your technology in 5 years when the competition has "leap- frogged" your ship. You will invest an additional $680 million in equipment and an additional net working capital of $135,000,000. The additional investment will be depreciated over the remaining three years of the project.

You can sell all of your equipment for $2,500,000 (salvage value) at the end of year 8. Also, all working capital investments are recouped at the end of year 8 as well.

You have one bond outstanding, one class of common shares, and one class of preferred stock as shown below. Assume the current capital structure will remain unchanged with this project.

Is this project worth doing? The market premium is 6% and the risk-free rate is 3.5%.

What is your decision: DEAL OR NO DEAL?

Different stakeholders may be interested in different numbers, so at a minimum, justify your decision by calculating the payback period, the discounted

payback period, the NPV, the IRR, the MIRR.

Selected Projections (input values) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Unit 150,000 150.000 136.000 136,000 134.000 150,000 150 Price Unit 85,000 110,000 115,000 120,000 65.000 150,000 175, Sales Variable (120,000) (121,000) (124.000) (128,000) (132,000) (136,000) (140.0 Costs Fixed (328,000,000) (334,000,000) (341,000,000) (347,000,000) (354,000,000) (361,000,000) (369,000,0 Costs Securities Data as of November 14, 2018 Debt Rating Price% of Face) Coupon Coupons Paid Maturity Current Yield Bonds Outstandin Bond 1 BBB 91.29 7.00% annual 11/23/30 (10 Yrs) 7.879 2,500,000 Common Stock Beta Market Value $28.35 Par Value $1.00 Last Dividend Growth Rate 0.75 5.00% Shares Outstandin 273,500,000 Class A Shares 1.1 Preferred Stock Par Value Market value $115.00 Dividend $8.75 Shares Outstandin 15.000.000 Shares $100