PART 1: Please answer and upload the following question as Excel document.

The Dophical Corporation, a firm in the 30% marginal tax bracket with a 15% required rate of return or cost of capital, is considering a new project. This project involves the production of a new product. This project is expected to last five years.

Cost of New Capital and Equipment: $198,000,000

Shipping and Installation Costs : $ 2,000,000

Unit Sales: Year Unit Sold

1. 500,000
2. 900,000
3. 900,000
4. 600,000
5. 30,000

Sales price per unit: $250/unit in year 1-4, $300/unit

Variable cost per unit: $40/unit

Annual Fixed Costs: $50,000,000

Working Capital Requirements: There will be an initial working capital requirement of $2,000,000 just to get production started. For each year, the total investment in net working capital will equal 10% of the dollar valueof sales for that year. Finally, 90% of all working capital is liquidated at the termination of the project at the end of year 5.

The Depreciation Method: The equipment is considered industrialized machinery and thus qualifies as seven-year MACRS property. In 5 years, the equipment can be sold for about 30% of its acquisition cost.

Assume that Dophical Corporation has hired you as the financial assistant to prepare a Pro Forma Income Statement. Given the above information, prepare a Pro forma Income Statement and determine the free cash flows associated with the project, and apply / calculate and comment on the following investment technique on Excel.

1. the Net Present Value
2. the IRR

2- Please answer and submit Question 2 as pdf. Make sure that your hand writing is readable and do not forget to write your name, your department and your signature at the end of your answersheets.

Use all of the information given / calculated in section one and via calculator calculate the questions given below:

1. Apply the Internal Rate of Return and comment on your result.

3. PART 1: Please answer and upload section a) of the following question as Excel document.

You are considering a new product launch. The project will cost 5 million baths, have a five year life, and have no salvage value; depreciation is straight line to zero. Sales are projected at 200 units per year; price per year will be 50,000 baths, variable cost per unit will be 20,000 baths, fixed costs will be 500,000 baths per year and interest expense is 200,000 baths per year. The required return on the project is 16%, and the relevant tax rate is 30 %.

a) Based on your experience, you think that the quantity projections given here are accurate to within +/- 15%. What is the base case NPV? What are the worst case NPV? Prepare a scenario analysis and comment on the degree of forecasting risk.

b) Given the base case projections in the previous problem, what are the financial break even sales level for this project? Discuss your results. (Ignore taxes in answering.)

4.Calculate and Comment on the WACC for the following firm:

Debt: 1000 bond with an 4 percent coupon rate outstanding, selling for 75% of par value. The bonds have 15 years to maturity.

Common stock: 1500 shares of common stocks. The dividend have a growth rate of 10 percent, the current price is $80, and the dividend next year will $4. The beta of the stock is 1,2.

Preferred stock: 500 shares of 6 percent preferred with acurrent price of $70.

Market: The corporate tax rate is 30 percent, the expected return on the market is 10 percent, and the risk-free rate is 5 percent.

5. Consider the following information

• State Probability X Z
• Boom .25 15% 10%
• Normal .60 10% 9%
• Recession .15 5% 10%

What are the expected return and standard deviation for a portfolio with an investment of $4000 in asset X and $6000 in asset Z?