Instruction 1. you apply the payback criterion, which project will you choose? Why? I points 2. you apply the NPV criterion, which project will you choose? Why? points 3. If you apply the IRR criterion, which project will you choose? Why? points 4. you apply the profitability index criterion, which project will you choose? Why? points) 5. Based on your answers in (1) through (4), which project will you finally chore?Why? 6 points) CASE 35 points The company is considering a new four year expansion project that requires an initial investment in manufacturing machinery C,000. The machinery wil be depreciated straight line to zero over its four year tax life (depreciation rate is 25% per year). At the end of the project, the machinery can be sold for 25% of its original cost. The project requires an initial investment in networking capital of 258.000: all of which will be recovered the end of the project. The project is estimated to generate C1,250,000 in annual sales with annual costs of C1.038.000. The tax rates 21 percent and the required return for the project is 16.4% 1. Complete the proforma below and determine free cash flows for each year of project's life. (20 points) 2. Would you recommend to accept or reject the project? Explain your decision points Year 2 4 Costs Depreciation EBIT Net income Operating Cash Flow Capital apenditure Net Working Capital Atentar salvage valve Free Cash Flow CASE 4025 points The balance sheet for Serenity Corporation is shown below in market value terms. There are 24 bilion shares outstanding MARKET-VALUE BALANCE SHEET(Figures in million) 315 Equity 4,022 Non current assets Total 10.571 Total 10,571 Instruction: 1. The company declared a cash dividend of 2.61 per share it goes dividend tomorrow ignoring any tax effects, where the resulting for today what wil they sell for tomorrow? What will the market value balance sheet look like after the dividends are paid? po 2. What if instead of cash dividend, the company has announced it is going to repurchase c1 billion worth of equity. What effect will this transaction have on the equity of the tim? How many shares will be outstanding what will the price per share better the purchase? poned 3. ignoring tax effects, explain how the share repurchase is effectively the same as a cash dividend You are added to the questions in the proposed four cases This task assesses the following learning outcomes Develop sound analytical frameworks to prap the process of decision making to making investment in fedets and the methods to evaluate new projects Understand what free cash flows and how to measure it . Understand a company's capital structure and dividend policy LAUNCH WEEK Friday August 23 2000/BLUVERT: WEEK Sunday August 23rd 2000. 23. ON MOODU Submision file format: Word document with all the answers, dearly identifying each case separately CASE 15 Look at the below book value balance sheet for Universal Corporation. The preferred stock currently sells for Casper share and said share common stock currently sells for CO per share and has a bea of 08. The bonds currently sell 3.22. The market is premium is 30. here and the firm's tax rate is on 1. Calculate the fun's ovestanding number of bonds, preferred shares and common shares 2. Calculate the fol market value capital structure 3. Calculate the fan's costs of common cout.preferred stock and del 4. Calculate the weighted average cost of capital 5. The form is considering an average risk project with an internal rate of retum of sex, should recept the project plan Spine BOOK VALUE BALANCE SHEET (Figures in milion Cash and short-term securities a Bonds per al 1006, coupe du maturity 10 yearyl to matury Accounts receivable Preferred to par value o Inventories Common stock par value 0.30 2 21 Additional in stockholders equity Retained earnings Total CASE Spot Consider the following two projecte Cash Flow he cash flow Omega 1 68,000 66.000 2.500 Which thu..manum 11 timent ( Mantander 3 of 5 wher, which they where we will De derde ple Art Working Ah 2. What intended and stand, the company has wondering CASE 3 (25 points) The company is considering a new four-year expansion project that requires an initial investment in manufacturing machinery of C1,670,000. The machinery will be depreciated straight-line to zero over its four-year tax life (depreciation rate is 25% per year). At the end of the project, the machinery can be sold for 26% of its original cost. The project requires an initial investment in net working capital of C198,000, all of which will be recovered at the end of the project. The project is estimated to generate C1,850,000 in annual sales, with annual costs of C1,038,000. The tax rate is 21 percent and the required return for the project is 16.4% Instructions: 1. Complete the pro forma below and determine free cash flows for each year of project's life. (20 points) 2. Would you recommend to accept or reject the project? Explain your decision, (5 points) 0 1 2 3 Year Sales Costs Depreciation EBIT Taxes Net income Operating Cash Flow Capital expenditure Net Working Capital After-tax salvage value Free Cash Flow