Hello can you assist me with this question? You helped me last week. Problem 7-5

PROBLEM 7-1 a. b. Solution Legend = Value given in problem = Formula/Calculation/Analysis required = Qualitative analysis or Short answer required = Goal Seek or Solver cell = Crystal Ball Input = Crystal Ball Output PROBLEM 7-2 Given Tax rate Cost of Capital 30.00% 15.00% 2015 EBITDA Less: Depreciation EBIT Less: Tax Net Income Investment $ $ Year 2016 2,400,000 $ 2017 2,400,000 $ 2018 4,250,000 (6,000,000) Free Cash Flow Analysis Solution Legend Year 2015 2016 2017 PFCF NPV IRR EVA Analysis NOPAT Invested capital ROIC Economic Profit MVA $ 6,000,000.00 Bierman (1988) revised EVA analysis Future Values Economic depreciation Revised NOPAT equals Project FCF + Ec. Deprn Revised Invested Capital Revised ROIC Revised capital charge Revised Economic Profit MVA Assume machine life of three years 2018 = Value given in problem = Formula/Calculation/Analysis required = Qualitative analysis or Short answer required = Goal Seek or Solver cell = Crystal Ball Input = Crystal Ball Output PROBLEM 7-3 Given Tax rate Cost of Capital 30.00% 15.00% Year 2016 2017 $ 4,250,000.00 $ 2,900,000.00 2015 EBITDA Less: Depreciation EBIT Less: Tax Net Income Investment Project FCF NPV IRR Assume machine life of three years Solution Legend = Value given in problem = Formula/Calculation/Analysis required = Qualitative analysis or Short answer required = Goal Seek or Solver cell EVA Analysis $ 6,000,000.00 Bierman (1988) revised EVA analysis Future Values Economic depreciation Revised NOPAT equals Project FCF + Ec. Deprn Revised Invested Capital Revised ROIC Revised capital charge Revised Economic Profit MVA 2018 1,000,000.00 (6,000,000.00) Free Cash Flow Analysis NOPAT Invested capital ROIC Economic Profit MVA $ = Crystal Ball Input = Crystal Ball Output PROBLEM 7-4 a. Since the opportunity costs of investing excess cash (retained earnings) is exactly equal to the cost of capital (equity), there will be neither dilution nor accretion of EPS. b. The projects NPV is given below. c. Given below. d. NPV is positive. The project should be accepted. Firm (Beck Electronics) Characteristics & Assumptions Invested Capital Borrowing Rate Debt Financing $ $ Required Equity Return Tax Rate T-Bill Yield Shares outstanding EBIT Cash Balance (pre-project) Debt as a percent of Enterprise Value Equity as a percent of Enterprise Value Cost of Capital (WACC) CAPEX = Depreciation Expense Solution Legend = Value given in problem = Formula/Calculation/Analysis required = Qualitative analysis or Short answer required = Goal Seek or Solver cell = Crystal Ball Input = Crystal Ball Output 30,000,000.00 5.00% Firm and project cost of debt 2,000,000.00 $ $ $ 10.00% 20.00% 4.00% 2,000,000.00 4,000,000.00 6,000,000.00 Firm and project cost of equity Same for firm and project per year (level perpetuity) Sufficient to fund the equity component of the investment Same for firm and project Table 7-1 Panel a. Project Characteristics and Assumptions Investment Outlay Debt financing Rate or return on investments $ $ 6,000,000.00 One time expenditure today - Perpetual debt (never matures) 12.5% Note: This is the return earned on the $6m used to tund the new investment Equity (from retained earnings) Additional EBIT per year Panel b. Pro Forma Income Statements EBIT Less: Interest Expense Plus: Interest Income (equity financing) EBT Raised using excess cash Per year (level perpetuity) Pre-Project Firm Project $ 4,000,000 - Firm + Project - $4,000,000.00 Less: Taxes Net Income Earnings per share Panel c. Cash Flow Analysis Pre-Project Firm EBIT $4,000,000.00 less: Taxes (800,000.00) NOPAT plus: Depreciation less: Capex FCF Panel d. Firm and Project Valuation Analysis Value of Pre-Project Firm Less: Investment Outlay $ Plus: Value of Project Cash flows Value of Firm plus Project Net Present Value Project Firm + Project $0.00 - $4,000,000.00 Project Firm + Project #DIV/0! (6,000,000.00) #DIV/0! #DIV/0! #DIV/0! Table 7-2 Panel a. EVA Analysis EBIT Less: Taxes NOPAT Less: Capital Charge Economic Profit Pre-Project Firm $ 4,000,000.00 $ (800,000.00) Project Firm + Project - $ 4,000,000.00 PROBLEM 7-5 Given Tax Rate Capital Expenditures in 2009 Weighted Average Cost of Capital Solution Legend 30.00% ($100,000) and none thereafter 11.24% = Value given in problem = Formula/Calculation/Analysis required = Qualitative analysis or Short answer required = Goal Seek or Solver cell = Crystal Ball Input = Crystal Ball Output Project Pro Forma Income Statements Revenues Less: Cost of Goods Sold Gross Profit Less: Operating Expenses Less: Depreciation Expense Net Operating Income Less: Interest Expense Earnings before Taxes Less: Taxes Net Income $ $ $ $ $ 2016 100,000.00 (40,000.00) 60,000.00 (20,000.00) (20,000.00) 20,000.00 (3,200.00) 16,800.00 (5,040.00) 11,760.00 $ $ $ $ $ 2017 105,000.00 (42,000.00) 63,000.00 (21,000.00) ### 22,000.00 ### 18,800.00 (5,640.00) 13,160.00 $ $ $ $ $ Year 2018 110,250.00 (44,100.00) 66,150.00 (22,050.00) (20,000.00) 24,100.00 (3,200.00) 20,900.00 (6,270.00) 14,630.00 $ $ $ $ $ 2019 115,762.50 (46,305.00) 69,457.50 (23,152.50) (20,000.00) 26,305.00 (3,200.00) 23,105.00 (6,931.50) 16,173.50 $ 2020 121,550.63 (48,620.25) 72,930.38 (24,310.13) ### 28,620.25 ### 25,420.25 (7,626.08) 17,794.17 $ $ $ $ Project Free Cash Flows 2015 Net Operating Income Less: Taxes NOPAT Plus: Depreciation Less: CAPEX Less: Change in NWC Project Free Cash Flow $ $ $ (100,000.00) (5,000.00) (105,000.00) $ Year 2017 22,000.00 $ (6,600.00) 15,400.00 $ 20,000.00 ### (262.50) 35,137.50 $ 2018 24,100.00 $ (7,230.00) 16,870.00 $ 20,000.00 (275.63) 36,594.37 $ 2019 26,305.00 $ (7,891.50) 18,413.50 $ 20,000.00 (289.41) 38,124.09 $ 2020 28,620.25 (8,586.08) 20,034.18 20,000.00 ### 6,077.53 46,111.71 $ 2017 85,250.00 $ Year 2018 65,512.50 $ 2019 45,788.13 $ 2020 26,077.54 $ 2017 85,250.00 $ Year 2018 65,512.50 $ 2019 45,788.13 $ 2020 26,077.54 2016 20,000.00 $ (6,000.00) 14,000.00 $ 20,000.00 (250.00) 33,750.00 $ Solution Invested Capital (Beginning of year) $ 2016 105,000.00 $ 2016 105,000.00 a. What is the project's expected NPV? IRR? NPV IRR b. Calculate the annual EVAs for 2010 through 2014. Invested Capital NOPAT Less: Capital Charge EVA PV of EVAs c. How would your assessment of the project's worth be affected if the economic profit in 2016 and 2017 were both negative