QUESTION $1$

$(15$ Marks$)$

The XYZ Corp is considering an investment project in the renewable energy sector. The

company plans to build a solar power plant for GHS $4$ million. The solar panels are expected to

go on sale a year from now and the project is estimated to last $5$ years. The table below shows the

estimated demand for the Solar panels.

$$a$.$re of Sect$=1,050,0$

late $q_{\text{i}\text{n}\text{y}}=3,000,3$

The price of solar panels today is GHS $5000.$ This price is expected to increase by $10\%$ every

year for the next five years. The unit cost of production is estimated at GHS $3000$ today. This is

atso expected to increase by $10\%$ every year. The plant, which cost GHS $4$ million will be

depreciated on a straight$-$line basis. It would be worth GHS $$00,000$ at the end of the period. The

company intends to borrow GHS $1$ million of the $GH4$ mitlion initial investment in the plant.

The lending bank has agreed to charge an interest rate of $15\%$ per annum on this deal. This

amount will be constant over the next $5$ years. The tax rate for projects of this nature is $25\%.$

Investment in Networking capital is expected to be $250,000$ at the start of the project. This will

remain at $20\%$ of revenue for the respective years. At the end of the project's life, all investments

in working capital shall be recovered.

The project is estimated to have a beta of $2.$ The interest rate on the market portfolio is $25\%$ and

the risk$-$free rate is $10\%.$

Required:

i$.(25$ Prepare the Proforma Income Statement $(2$Marks$)$

ii$.$ Calculate the operational cash flow for each year. $(2$Marks$)$ Add lyade $15$cop

iii. Determine the net working capital investment and recovery. $(2$Marks$)$

iv$.$ Compute Free Cash Flows to the firm's investors. $(4$Marks$)$

v$.$ Compute the Cost of equity for this project using the Capital Asset Pricing Model.

vi$.$ Compute the overall cost of Capital for this project $($WACC$)(1$Mark$)$

vii. Compute the Net Present Value $($NPV$)$ of the project. $(3$Marks$)$

$5600$

Ce

$=500$