Homework #4 Cost of Capital 1. (20 Points) Please complete the cashflow worksheet as provided on next page (you could copy it to EXCEL). Add any lines you'd like to help or highlight any of the calculations. No need to calculate NPV or IRR. Assume that the tax law is such that any losses could be carried over to offset future years' profits before taxes indefinitely. For example, if in period 1, there is a loss of $10, that $10 could be used to offset Profits before Tax in period 2 to reduce taxes. If Profit before Tax in period 2 happens to be $20, the tax base in period 2 will be = $20 - $10 = $10. The $10 is then subject to tax in period 2. If period 2 also incur losses, the $10 loss will be carried forward until there is a year with positive income. Homework #4 Cost of Capital Period O Period 1 Period 2 Revenue $100 $500 Cost of goods sold $100 $100 Depreciation $200 $100 Profit before tax Taxes (tax rate = 20%) Profit after tax (net income) Operating cash flow Accounts Receivables Accounts Payables $0 $0 $0 $70 $10 $40 $100 $0 $20 Inventory Total cash flow