Given Information WAOC: (from calculation below) Corporate Marginal Tax rate: 22.0% 1 New product line information Year 1 revenues: Annual Revenue Growth rate: Year 1 COGS % Annual reduction in COGS%: 6.520,000 6.5% 59.4% 0.5% Initial Incremental SGA Annual Reduction in SG&A Increase in NWC required: 527.500 1.2% 690,000 Start-up costs: Training on new product line Prior research into new prod. line 990.000 398,600 Annual warehouse rental lost: 1 375,000 1 Existing Product Lines Erosion: Revenue erosion year 1: Increased erosion per year: COGS%: 874.600 6.4% 63.6% New Equipment Required: Cost machine 1 6.820,000 machine 2 4,180,000 MACRS Life 5 7 Disposal of Existing machinery Cost machine a 5.000.000 machine b 3,500,000 Book Value 401.600 200,000 Proceeds 410.000 175,000 Schedule: G/L on Disposals (net of Tax) Gain/Loss) Taxon GL Net Proceeds machine a machine b Total Calculations T D T Revenue on new Product Line COGS: Sales, General & Admin Costs Depreciation (from schedule below) EBIT Taxes Net Income Add Back: Depreciation (from schedule) Less: Erosion Costs (from schedule) Operating Cash Flows Enter all revenues and costs as positive numbers, then account for inflows versus outflows in the subtotals and totals. It is possible for Taxes to be negative Incremental Costs: Capital Spending Start-up Costs After-Tax Proceeds of Disposals Change in Net Working Capital Relevant Opportunity costs: Incremental Cash Flow Discounted Cash Flows: Cumulative Cash Flow. Cumulative Discounted Cash Flow Net Present Value IRR Payback Discounted Payback Profitability Index: 71 Schedule: Revenue Erosion Costs Lost Revenue Related COGS Gross profit Taxes Net Erosion Costs Schedule: Depreciation machine 1 (5 year MACRS Life) machine 2 7 year MACRS Life) Total MACRS Tax Tables 20.00% 14.29% 32.00% 24.49% 19.20% 17.49% 11.52% 12.49% 11.52% 93% 5.76% 93% 7 Year WACC Calculation Cost of Equity (Ke) Cost of Debt (Kd) YTM Weight After-Tax % 1 Weighted 1.20% Description Bond 1 Bond 2 Bond 3 MRP: Beta: Cost of Equity: L 7.2% 6.1% 5.3% Par Value 5,000,000 2,500,000 4,850,000 12,350,000 1.3 Cost of Debt (Kdy: Cost of Capital (Kc) Rate Weight Weighted Cost of Equity (Ke): Cost of Debt (Kd): Balance 15,800,000 12,350,000 28,150,000 WACC: Given Information WAOC: (from calculation below) Corporate Marginal Tax rate: 22.0% 1 New product line information Year 1 revenues: Annual Revenue Growth rate: Year 1 COGS % Annual reduction in COGS%: 6.520,000 6.5% 59.4% 0.5% Initial Incremental SGA Annual Reduction in SG&A Increase in NWC required: 527.500 1.2% 690,000 Start-up costs: Training on new product line Prior research into new prod. line 990.000 398,600 Annual warehouse rental lost: 1 375,000 1 Existing Product Lines Erosion: Revenue erosion year 1: Increased erosion per year: COGS%: 874.600 6.4% 63.6% New Equipment Required: Cost machine 1 6.820,000 machine 2 4,180,000 MACRS Life 5 7 Disposal of Existing machinery Cost machine a 5.000.000 machine b 3,500,000 Book Value 401.600 200,000 Proceeds 410.000 175,000 Schedule: G/L on Disposals (net of Tax) Gain/Loss) Taxon GL Net Proceeds machine a machine b Total Calculations T D T Revenue on new Product Line COGS: Sales, General & Admin Costs Depreciation (from schedule below) EBIT Taxes Net Income Add Back: Depreciation (from schedule) Less: Erosion Costs (from schedule) Operating Cash Flows Enter all revenues and costs as positive numbers, then account for inflows versus outflows in the subtotals and totals. It is possible for Taxes to be negative Incremental Costs: Capital Spending Start-up Costs After-Tax Proceeds of Disposals Change in Net Working Capital Relevant Opportunity costs: Incremental Cash Flow Discounted Cash Flows: Cumulative Cash Flow. Cumulative Discounted Cash Flow Net Present Value IRR Payback Discounted Payback Profitability Index: 71 Schedule: Revenue Erosion Costs Lost Revenue Related COGS Gross profit Taxes Net Erosion Costs Schedule: Depreciation machine 1 (5 year MACRS Life) machine 2 7 year MACRS Life) Total MACRS Tax Tables 20.00% 14.29% 32.00% 24.49% 19.20% 17.49% 11.52% 12.49% 11.52% 93% 5.76% 93% 7 Year WACC Calculation Cost of Equity (Ke) Cost of Debt (Kd) YTM Weight After-Tax % 1 Weighted 1.20% Description Bond 1 Bond 2 Bond 3 MRP: Beta: Cost of Equity: L 7.2% 6.1% 5.3% Par Value 5,000,000 2,500,000 4,850,000 12,350,000 1.3 Cost of Debt (Kdy: Cost of Capital (Kc) Rate Weight Weighted Cost of Equity (Ke): Cost of Debt (Kd): Balance 15,800,000 12,350,000 28,150,000 WACC