Question 5 (total of 15 marks): See the below hostel business project. Note that k is an abbreviation for kilo. So $1k is $1,000. The unit sales is measured in nightly stays.

Hostel Business Project Data
Project life	Perpetual
Initial market value of the building and land	$3,000k
Initial book value of land	$1,000k
Initial book value of building	0
Depreciation of building and land pa	0
Unit sales at end of each year	10k nights
Sale price per unit at end of each year	$50/night
Variable cost per unit at end of each year	$20/night
Manager salary pa, paid in arrears	$120k
Required return on assets (WACC before tax)	10% pa
Tax rate	30%

Note 1: The investor already owns the building and land which are currently unused. However, they could be sold immediately for $3,000k as one parcel. The building is fully depreciated for tax purposes so if its not sold and is used it in the hostel project, it would incur zero depreciation expense. The land is also not depreciable. The book value of the land is $1,000k and the building has zero book value.

Note 2: Initially (t=0) you expect an increase of 90k in your accounts payable (current liability) and 10k in your bathroom consumables inventory (current asset). The account payable will be repaid and the current asset used up on the last day of the year (so each will be zero), but then the next day of the new year they will increase back to their initial levels again, and so on every year forever. Therefore the only change in net working capital due to the project will be at the initial time (t=0).

Note 3: The business is expected to operate forever and the hostel projects year 1 cash flows will be constant every year onwards. This is because the unit sales, sale price, variable cost, managers salary and working capital requirements are expected to be constant forever. Also, no further CapEx is expected after the initial investment.

Note 4: The project will be funded by equity only.

Feel free to disregard units when providing your final answer. So if its $50k, you can just write 50. This question will be marked by a teacher so you can show working if you want, though its unnecessary to score full marks.

Question 5a (3 marks): Find the initial (t=0) after-tax capital expenditure (CapEx) required.

Question 5b (3 marks): Find the projects Firm Free Cash Flow (FFCF) at time t = 0. You do not need to find the NPV. Feel free to disregard units when providing your final answer.

Question 5c (3 marks): Find the projects FFCF at time 1.

Question 5d (3 marks): Find the NPV of starting the hostel business. Remember that note 4 means that this project can be valued as a level perpetuity.

Question 5e (3 marks): Find the IRR of starting the hostel business. Give your answer as a decimal thats correct to 2 decimal places or more. So for example if your answer is 1.23456789%, you can write 0.0123456789.