JX Capital Structure Debt Interest Rate Tax Rate 40% 6% 26% Equity Risk Free rate RM Beta 60% 6% 13% 1.20 Working Capital 10% next year's sales No terminal cash flows Capital Investent Project 1 1,000,000 Year Revenues 1 780,000 2 799,500 3 819,488 4 839,975 5 860,974 6 731,828 7 622,054 8 528,746 Expenses 585,000 599,625 614,616 629,981 645,731 585,462 497,643 422,997 Project 2 Capital Investent 700,000 Year Revenues Expenses 1 800,000 600,000 2 820,000 615,000 3 840,500 630,375 4 861,513 646,134 5 883,050 662,288 6 750,593 600,474 7 638,004 510,403 542,303 433,843 Capital Investent Project 3 850,000 Year Revenues Expenses 1 850,000 637,500 2 871,250 653,438 3 893,031 669,773 4 915,357 686,518 5 938,241 703,681 6 797,505 638,004 7 677,879 542,303 8 576,197 460,958 00 Instructions Compute the cost of debt financing Compute the cost of equity financing using the capital asset pricing model (CAPM) Compute the waighted average cost of capital (WACC) The capital investment is to be depreciated as a 7 year asset please use the table on page 500 Evaluate each independent project by computing Net present value (NPV) Internal rate of return (IRR) Payback Decision is to accept or reject the project JX Capital Structure Debt Interest Rate Tax Rate 40% 6% 26% Equity Risk Free rate RM Beta 60% 6% 13% 1.20 Working Capital 10% next year's sales No terminal cash flows Capital Investent Project 1 1,000,000 Year Revenues 1 780,000 2 799,500 3 819,488 4 839,975 5 860,974 6 731,828 7 622,054 8 528,746 Expenses 585,000 599,625 614,616 629,981 645,731 585,462 497,643 422,997 Project 2 Capital Investent 700,000 Year Revenues Expenses 1 800,000 600,000 2 820,000 615,000 3 840,500 630,375 4 861,513 646,134 5 883,050 662,288 6 750,593 600,474 7 638,004 510,403 542,303 433,843 Capital Investent Project 3 850,000 Year Revenues Expenses 1 850,000 637,500 2 871,250 653,438 3 893,031 669,773 4 915,357 686,518 5 938,241 703,681 6 797,505 638,004 7 677,879 542,303 8 576,197 460,958 00 Instructions Compute the cost of debt financing Compute the cost of equity financing using the capital asset pricing model (CAPM) Compute the waighted average cost of capital (WACC) The capital investment is to be depreciated as a 7 year asset please use the table on page 500 Evaluate each independent project by computing Net present value (NPV) Internal rate of return (IRR) Payback Decision is to accept or reject the project