Please find attached a word document (Task 3) and an excel spreadsheet (Task 2). For context, Task 3 is where you can locate the question. Task 2 are merely calculations that may or may not be helpful to solving the problem for Task 3.

ACME Iron Balance Sheet Assets Current assets: Cash Investments Inventories 2014 500,000 1,000,000 110,000,000 11,750,000 Accounts receivable Pre-paid expenses Other 2015 change 600,000 100,000 1,025,000 25,000 117,000,000 7,000,000 12,500,000 750,000 2,500,000 0 2,600,000 100,000 0 - Total current assets Fixed assets: 125,750,000 2014 133,725,000 7,975,000 2015 change Property and equipment 165,000,000 175,000,000 10,000,000 Leasehold improvements 0 0 - Equity and other investments 55,000,000 65,000,000 10,000,000 Less accumulated depreciation Total fixed assets Other assets: Goodwill Total other assets Total assets 15,000,000 235,000,000 2014 75,000,000 75,000,000 435,750,000 15,500,000 500,000 255,500,000 20,500,000 2015 change 70,000,000 (5,000,000) 70,000,000 (5,000,000) 459,225,000 23,475,000 Current liabilities: Accounts payable Accrued wages 2014 40,500,000 85,000,000 2015 change 42,400,000 1,900,000 90,500,000 5,500,000 Accrued compensation 10,000,000 10,855,000 855,000 Income taxes payable 4,024,000 4,697,000 673,000 current portion of LT debt Other 5,500,000 0 10,350,000 4,850,000 0 - Liabilities and owner's equity Total current liabilities 145,024,000 158,802,000 13,778,000 Long-term liabilities: Long term debt 2014 125,000,000 2015 change 130,000,000 5,000,000 Total long-term liabilities Owner's equity: Common stock Preferred stock 125,000,000 2014 122,000,000 16,725,000 130,000,000 5,000,000 2015 change 122,000,000 - 16,725,000 - Accumulated retained earnings 27,001,000 31,698,000 4,697,000 Total owner's equity 165,726,000 170,423,000 4,697,000 Total liabilities and owner's equity 435,750,000 459,225,000 Equity Debt $ $ 153,698,000 IncludesCommon Stock and Retained Earnings 140,350,000 In determining the cost of debt for the WACC calculation, only interest-bearing debt is included (such as bonds); accounts payable, accrued expenses and other non-interest bearing debt is not included Total Capital (Enterprise Value) $ 294,048,000 Equity/Enterprise Value Debt/Enterprise Value Step 2: Estimate the costs of Financing Cost of Debt (before tax) Tax rate Debt (after taxes) 52.27% 47.73% 8% 40% 4.80% Expected Market Return Beta 6.00% 1.43 Risk Free Rate 1.76% Cost of Equity Average beta for Steel/Iron industry http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/Betas.html 10 year treasury rate as of 2.26.16 https://www.treasury.gov/resourcecenter/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield 7.82% Step 3: Calculate the WACC WACC Source of Capital Debt Equity 6.38% Capital Structure Weight (Proportion) After-Tax Cost Weighted After-Tax Cost 47.73% 4.80% 0.02291 52.27% 7.82% 0.04089 WACC 0.06380 Task 3 Capital investment: Acme is planning construction of a new loading ramp for its single iron mill. The initial cost of the investment is $1 million. Efficiencies from the new ramp are expected to reduce costs by $100,000 for the life of the plant which is currently estimated at another 30 years. When will this project break-even on a simple cash basis and a discounted cash basis. What is the NPV of the project if Acme has an after tax cost of debt of 8% and a cost equity of 12% (they are currently funded equally by debt and equity)? Concept Check: We need to adjust cash flows to account for things like inflation, our cost of capital and opportunity costs. Simply looking at cash flow not adjusted for some of these costs will lead to taking on projects which are not really adding to the value of the organization. Helpful Hint: The first step in conducting an NPV analysis is to include all the relevant cash flows. This includes savings from taxes and any expenses directly related to the venture. We reject any project with a negative NPV. Financial Statements for use on Tasks ACME Iron Balance Sheet Assets Current assets: Cash Investments Inventories Accounts receivable Pre-paid expenses Other Other assets: Goodwill 2014 2015 500,000 600,000 1,000,000 1,025,000 110,000,000 117,000,000 11,750,000 12,500,000 2,500,000 2,600,000 0 0 125,750,00 133,725,000 0 2014 2015 165,000,00 175,000,000 0 0 0 55,000,000 65,000,000 15,000,000 15,500,000 235,000,00 255,500,000 0 2014 2015 75,000,000 70,000,000 Total other assets 75,000,000 70,000,000 Total current assets Fixed assets: Property and equipment Leasehold improvements Equity and other investments Less accumulated depreciation Total fixed assets change 100,000 25,000 7,000,000 750,000 100,000 - 7,975,000 change 10,000,000 10,000,000 500,000 20,500,000 change (5,000,000) (5,000,000 ) Total assets 435,750,00 459,225,000 0 23,475,000 Liabilities and owner's equity Current liabilities: Accounts payable Accrued wages Accrued compensation Income taxes payable current portion of LT debt Other 2014 40,500,000 85,000,000 10,000,000 4,024,000 5,500,000 0 145,024,00 Total current liabilities 0 Long-term liabilities: 2014 125,000,00 Long term debt 0 125,000,00 Total long-term liabilities 0 Owner's equity: 2014 122,000,00 Common stock 0 Preferred stock 16,725,000 Accumulated retained earnings 27,001,000 165,726,00 Total owner's equity 0 435,750,00 Total liabilities and owner's equity 0 2015 42,400,000 90,500,000 10,855,000 4,697,000 10,350,000 0 change 1,900,000 5,500,000 855,000 673,000 4,850,000 - 158,802,000 13,778,000 2015 change 130,000,000 5,000,000 130,000,000 5,000,000 2015 change 122,000,000 - 16,725,000 31,698,000 4,697,000 170,423,000 4,697,000 459,225,000 23,475,000 Acme Iron Dec. 2015 INCOME STATEMENT (Financial Statements in '000s of U.S. Dollars) Revenue Gross Sales Less: Sales Returns & Allowances Net Sales 250,000 2,500 247,500 Cost of Goods Sold Beginning Inventory Add: Purchases Freight-in Direct Labor Indirect Expenses Inventory Available Less: Ending Inventory Cost of Goods Sold Gross Profit (Loss) Expenses 7,500 4,500 0 75,000 15,000 102,000 102,000 145,500 Advertising Amortization Bad Debts Depreciation Dues and Subscriptions Employee Benefit Programs Insurance Interest Legal and Professional Fees Licenses and Fees Miscellaneous Office Expense Payroll Taxes Postage Rent Repairs and Maintenance Supplies Telephone Travel Utilities Vehicle Expenses Wages Total Expenses Net Operating Income 7,500 0 5,000 500 0 18,750 2,500 10,350 100 0 10 100 5,625 3 0 5,000 2,000 120 1,750 50,000 450 25,000 134,758 10,742 Other Income Gain (Loss) on Sale of Assets Interest Income Total Other Income Taxes Net Income (Loss) 0 1,000 1,000 4,697 7,045