Please complete the capital budgeting analysis for this project. You should develop the incremental cash flows: o Initial investment cash flow at t=0, o Operating cash flows through the life of the project, o Terminal cash flows You should evaluate the project using: o Net Present Value, o Internal Rate of Return, o Modified Internal Rate of Return Present your decision whether the project should be accepted or rejected, and justify.

The WACC is 7.295%

The hurdle rate is 9.295%

Car Tech Evaluation Expert (CTEX) Project Equipment $ 9,250,000.00 Investment in inventory $ 775,000.00 Increase in AP $ 225,000.00 Time in years $ 9.00 Equipment Salvage Value $ 165,000.00 $ Estimated Sales Yr. 1 Sales growth Year 2 Sales growth Year 3 Sales growth Years 4 & 5 Sales growth Year 6 Sales growth Years 7,8,9 2,125,000.00 50% 25% 15% 10% 5% 234,000 Production fixed costs Annual variable costs 42% of rev 34%) Tax Rate Beta Risk free rate of return Market risk premium 1.48 2.25% 4.25% Debt Equity Total Capital $ 250,000,000.00 $ 833,333,333.00 $ 1,083,333,333.00 High Risk WACC +2 Weighted Average Cost of Capital D/E Wd Rd Rd(1-T) b Wce 0 0 0% 0.00% 1.24 1.000 0.3 0.231 4.77% 3.15% 1.48 0.769 0.499 0.333 5.25% 3.47% 1.64 0.667 0.75 0.4283 6.75% 4.46% 1.85 0.571 Rd=before tax cost of debt Rd(1-T)= After tax cost of debt WACC b= beta Re=cost of common equity Wd=Weight of debt Wce=Weight of common equity Re 7.50% 8.54% 9.23% 10.10% WACC 7.500% 7.295% 7.310% 7.680% 7.295% Car Tech Evaluation Expert (CTEX) Project Equipment $ 9,250,000.00 Investment in inventory $ 775,000.00 Increase in AP $ 225,000.00 Time in years $ 9.00 Equipment Salvage Value $ 165,000.00 $ Estimated Sales Yr. 1 Sales growth Year 2 Sales growth Year 3 Sales growth Years 4 & 5 Sales growth Year 6 Sales growth Years 7,8,9 2,125,000.00 50% 25% 15% 10% 5% 234,000 Production fixed costs Annual variable costs 42% of rev 34%) Tax Rate Beta Risk free rate of return Market risk premium 1.48 2.25% 4.25% Debt Equity Total Capital $ 250,000,000.00 $ 833,333,333.00 $ 1,083,333,333.00 High Risk WACC +2 Weighted Average Cost of Capital D/E Wd Rd Rd(1-T) b Wce 0 0 0% 0.00% 1.24 1.000 0.3 0.231 4.77% 3.15% 1.48 0.769 0.499 0.333 5.25% 3.47% 1.64 0.667 0.75 0.4283 6.75% 4.46% 1.85 0.571 Rd=before tax cost of debt Rd(1-T)= After tax cost of debt WACC b= beta Re=cost of common equity Wd=Weight of debt Wce=Weight of common equity Re 7.50% 8.54% 9.23% 10.10% WACC 7.500% 7.295% 7.310% 7.680% 7.295%