Las Vegas Pharma is a small pharmaceutical company based in Nevada. Company$$s management is considering an investment in a four$-$year specialty chemical manufacturing project. You are provided with the project$$s proforma income statement and you also collected the following information: The project requires an initial investment of $$15,000$ and an additional investment of $$2,000$ at the end of Year $2.$ Equipment will be sold at the remaining book value at the end of the four$-$year project $($note: depreciation expenses are provided in the next tab$).$ The working capital is anticipated to be $10\%$ of revenues at the beginning of each period. Working capital will be fully recovered at the end of the project. The facility where the chemical production is expected to be located is currently owned by the company and generates $$1,000$ in annual taxable rental revenue $$ if the company decides to proceed with this investment, this revenue stream will be discontinued. Current YTM on $10-$yr$.$ Treasury is $2\mathrm{.}20\%,$ the most recent interest coverage ratio of the company was $3\mathrm{.}1($see table in Excel file for risk premiums$),$ and the company is applying MRP $($market risk premium$)$ of $6\mathrm{.}0\%$ in estimating its cost of equity. Company$$s finance department estimates that the betas are: $1\mathrm{.}1$ for pharmaceutical businesses $1\mathrm{.}7$ for specialty chemical businesses Currently, the company uses a $30/70$ mix of debt and equity in its capital structure and the same capital mix will be used to fund this project. The company$$s marginal tax rate is $21\%.$ In Excel file calculate the following $($highlight your answers$)$: $1)$ appropriate weighted average cost of capital $($WACC$)$ for this project $(6$ points$)2)$ project$$s free cash flows $(25$ point$)3)$ net present value of the project $(3$ points$)4)$ internal rate of the project $(3$ points$)5)$ payback period $(3$ points$)$ Extra credit $(5$ points$)$ What is the maximum initial investment the company can make for the project to be acceptable? $($if you proceed with this question, create a separate tab in Excel named $$extra credit$)$

Section III Year

Clearly mark your answers $01234$

Revenues $9,00010,00011,00012,000$ If interest coverage ratio is Column$1$ Column$2$ Column$3$

$-$ Cost of Goods Sold and other Direct Expenses $-4,000-4,400-4,800-5,200><=$ to Rating is Spread is

$-$ Depreciation $-4,000-3,000-2,000-1,00012\mathrm{.}5100,000\mathrm{.}00$ Aaa$/$AAA $0\mathrm{.}60\%$

$9\mathrm{.}512\mathrm{.}5$ Aa$2/$AA $0\mathrm{.}80\%$

$7\mathrm{.}59\mathrm{.}49$ A$1/$A$+1\mathrm{.}00\%$

$67\mathrm{.}49$ A$2/$A $1\mathrm{.}10\%$

$4\mathrm{.}55\mathrm{.}99$ A$3/$A$-1\mathrm{.}25\%$

$44\mathrm{.}49$ Baa$2/$BBB $1\mathrm{.}60\%$

$3\mathrm{.}53\mathrm{.}99$ Ba$1/$BB$+2\mathrm{.}50\%$

$33\mathrm{.}49$ Ba$2/$BB $3\mathrm{.}00\%$

$2\mathrm{.}52\mathrm{.}99$ B$1/$B$+3\mathrm{.}75\%$

$22\mathrm{.}49$ B$2/$B $4\mathrm{.}50\%$

$1\mathrm{.}51\mathrm{.}99$ B$3/$B$-5\mathrm{.}50\%$

$1\mathrm{.}251\mathrm{.}49$ Caa$/$CCC $6\mathrm{.}50\%$

$0\mathrm{.}81\mathrm{.}24$ Ca$2/$CC $8\mathrm{.}00\%$

$0\mathrm{.}50\mathrm{.}79$ C$2/$C $10\mathrm{.}50\%$

$-100,0000\mathrm{.}49$ D$2/$D $14\mathrm{.}00\%$