Question
pls, answer these questions for me pls...... subject: finance Question: MBA Corp plans to use its idle building that can potentially be rented for $15,000
pls, answer these questions for me pls......
subject: finance
Question:
MBA Corp plans to use its idle building that can potentially be rented for $15,000 per annum to set up a manufacturing machinery there.
The current Revenue of MBA Corp is $500,000. If the company takes up this project, its revenue is expected to increase by 30% for the next three years and then double (from the 3rd year level) for the next two years.
After 5 years, the project will be scrapped and the salvage value is expected to be $80,000
The COGS are expected to remain the same at 60% of revenue. The SG&A and other operating costs will increase by $10,000.
The cost of the machinery is expected to be $250,000. The machinery installation cost is expected to be $20,000. This investment will require additional inventory of $40,000 and increase the accounts payable by $20,000
The company spent $5000 in researching the viability of the building for machine installation.
The company hires you as a financial manager to advise if they should take up this project or not.
Other information: Full 100% depreciation is taken for the CAPEX in the year in which it is done
Tax rate = 25%
For calculating WACC, please use the below information:
Cost of new Debt: 8%
Cost of Preferred Shares: 6%
Cost of Equity: Need to calculate
Beta = 1.2 Rf = 2% RM-Rf = 6%
Target Capital Structure: Debt : Preferred Sh : Equity =3 : 1 : 6
Answer the flowing questions:
1. What is the initial outlay?(Show the working as to what items are included)
2. Calculate Cost of Equity using CAPM:
3. Calculate WACC
4. Fill in the below income statement
2022 2023 2024 2025 2026
Revenue
COGS
Gross Profit
SG&A/Other costs
Depreciation
EBIT
Interest
EBT
Tax
Net Profit
5. Calculate Operating Cash Flow for the 5 years
2022 2023 2024 2025 2026
EBIT (1-Tax)
Add: Depreciation
FCF
6. What is the Terminal Value (Show the working)
7. Calculate NPV
8. Calculate IRR (You can use a calculator or the excel formula)
9. Calculate MIRR (You can use a calculator or the excel formula)
10. What is the conclusion- should the project be undertaken or not? Why?
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