JD Sports Fashion Plc is currently evaluating a new project that will expand its lines to include a designated golf line that will offer not only clothing but also golf equipment and accessories. The project will require an initial outlay of 20m on production machinery and other costs. The project is expected to have a three-year life span and the cash flows associated with the projected are projected in the below table: see attached image A and B

Usefull link for company report: https://www.jdplc.com/reports-presentations

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Required:

The company believes it will be a successful project and will help to

distinguish it from its competitors. However, the company would like

you to evaluate the project using different methods and present a

proposal to the investment committee in order for them to approve it.

Question 3:

c) Assuming the market risk of the project is similar to the overall market risk of the firm, revise the project's NPV using the Weighted Average Cost of Capital (WACC). Compare the answer to part a) - Question 1

Note: Assume the same level of debt is held until the end of the project. Do not consider the repayment of the debt principal in any of the above valuations in parts a) to c).

JD Sports Fashion Plc is currently evaluating a new project that will expand its lines to include a designated golf line that will offer not only clothing but also golf equipment and accessories. The project will require an initial outlay of 20m on production machinery and other costs. The project is expected to have a three-year life span and the cash ows associated with the projected are projected in the below table: Table 1: JD Sports Fashion Pic potenalpmjects cash ow kilometre All gures in 'm 2021 2022 2023 Sales 45.0 52.0 58.0 COGS 24.8 28.6 31.9) Gross Prot 20.3 23.4 26.1 Operating Expenses (2.0) (2.5) (3.0) EBl-lDAa 18.3 20.9 23.1 Depreciation (1.0) (1.0) (1.0) EBI'I'a 17.3 19.9 22.1 Tax Expense (3.3) (3.8) (4.2) EBIATa 14.0 16.1 17.9 CAPEX" 4 2 2 Investment in Working Capital 0 0 3 'EBI'I'DA: Earnings Before Interest, Taxes, Depredaon ard Amortlsation. EB'IT: Eamlngs before Interest and Taxes. EEIAT: Earnings Before lnterst and After Taxa. For strnpllcity, taxes calculated assuming no Interest expense. t'ilnnual capital expenditures In addition to the Inltlal outay, and assumed to cease at the end of the 221m. The project has a debt capacity of 60% of the cost of the project, with an annual interat charge of 5%. The company currently has 3m of retained eamings available for this project, and the remainder would potentially be nanced with a rights issue. The rights issue incurs additional costs of 2% of the amount raised, and the debt issuance is a bit cheaper, costing 1%, where both issue costs are tax deducble. fable 2: Additional inamra [for] Key Rita and Figur Risk-free Rate (ln') ? Project Cost of Debt (ld) protax 5.00% Market premium ? Marginal Corporate Tax Rate 19.00% JD Sports Fashion Plc's unlevered Beta (B) 1.77 You will need to research the other values needed to complete Table 2 above. Required: The company believes it will be a successful project and will help to distinguish it from its competitors. However, the company would like you to evaluate the project using different methods and present a proposal to the investment committee in order for them to approve it. a) JD Sports Fashion Pic is considering nancing the project with 60% debt. Using the Internal Rate of Return (RR) and Net Present Value (NW), appraise the project. Hm.- cafcufar'e the ea as}; ow of the pngfect and use 04PM to compute tie discount rate. [12 marks] b) Evaluate the project using Adjusted Present Value (AW). [12 marks] c) Assuming the market risk of the project is similar to the overall market risk of the rm, revise the project's NPV using the Weighted Average Cost of Capital (WACC). Compare the answer to part a). [12 marks] Note: Assume the same level of debt is held until the end of the project. Do not consider the repayment of the debt principal in any of the above valuations in pan: a) to c).|