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Please answer all the questions please. I am not for sure if 11-13 are correct or not. You are expected Sales to increase next year
Please answer all the questions please. I am not for sure if 11-13 are correct or not.
You are expected Sales to increase next year by 10% off of a base of $7,000 this year. Net Income this past year was $600. Assets were 11,000 this year, and the Sales/Assets ratio will remain constant next year. Debt this past year was at 3,500 , and the Debt/Equity ratio will remain constant for the next year. No debt will be retired and no stock will be retired. No Dividends will be given out. DISCOUNTED CASH FLOW The firm expects the following 3 years of cash flow from a project to look like this: The project will last 5 years in total and then it will be sold for 200% x Revenues for that year. All cash flows will occur at the End of Each Year. The discount rate for the project is given by the Cost of Equity calculated by using the Capital Asset Pricing Model (CAPM). Beta is 1.5. The risk-free rate is 5%. The equity risk premium is said to be 8%. This CAPM derived cost of equity capital will be used for all years. Using the cost of equity from the CAPM, please calculate the Present Value of each individual cash flow: 11. PV Year 1 CF: 85.470 12. PV Year 2 CF: 91.314 13. PV Year 3 CF: 87.4118 14. PV Year 4 CF: 15. PV Year 5 CF 16. The project is SOLD at the end of Year 5, for two-times Year 5 CF. What is the PV of the proceeds from the sale of the project? 17. What is the SUM of the PVs from all six cash flows? (PVs from Years 1 through 5 plus PV of the proceeds from the sale)Step by Step Solution
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