Just need help with problem 7 parts b,c,d. question 6 is provided just for context
6. You are provided with the projected income statements for a project Year Revenues $10,000 $11,000 $12,000 $13,000 - Cost of goods sold $7.000 - $2.000 - 34,801 - 35200 Depreciation $7,000 $3.000 $2,000 $1,000 $ EBIT $2,000 $3,600 55,200 56,800 The tax rate is 40% The project required an initial investment of $15.000 and an additional investment of $2.000 at the end of year 2 The working capital is anticipated to be 10% of rev- enues, and the working capital investment has to be made at the beginning of each period a. Estimate the free cash flow to the firm for each of the four years b. Estimate the payback period for investors in the firm. c. Estimate the NPV to investors in the firm, if the cost of capital is 12%. Would you accept the project? d. Estimate the IRR to investors in the firm. Would you accept the project? 7. Consider the project described in Problem 6. Assume that the firm plans to finance 40% of its net capital ex- penditure and working capital needs with debi. a. Estimate the cash flow to equity for each of the four years b. Estimate the payback period for equity investors in the firm. c. Estimate the NPV to equity investors if the cost of equity is 16%. Would you accept the project? d. Estimate the IRR to equity investors in the firm. Would you accept the project? You are provided with the following cash flows on a 6. You are provided with the projected income statements for a project Year Revenues $10,000 $11,000 $12,000 $13,000 - Cost of goods sold $7.000 - $2.000 - 34,801 - 35200 Depreciation $7,000 $3.000 $2,000 $1,000 $ EBIT $2,000 $3,600 55,200 56,800 The tax rate is 40% The project required an initial investment of $15.000 and an additional investment of $2.000 at the end of year 2 The working capital is anticipated to be 10% of rev- enues, and the working capital investment has to be made at the beginning of each period a. Estimate the free cash flow to the firm for each of the four years b. Estimate the payback period for investors in the firm. c. Estimate the NPV to investors in the firm, if the cost of capital is 12%. Would you accept the project? d. Estimate the IRR to investors in the firm. Would you accept the project? 7. Consider the project described in Problem 6. Assume that the firm plans to finance 40% of its net capital ex- penditure and working capital needs with debi. a. Estimate the cash flow to equity for each of the four years b. Estimate the payback period for equity investors in the firm. c. Estimate the NPV to equity investors if the cost of equity is 16%. Would you accept the project? d. Estimate the IRR to equity investors in the firm. Would you accept the project? You are provided with the following cash flows on a
