SAXTON COMPANY Balance Sheet As of December 31, 2009 Assets Cash $ 30,000 Accounts Receivable 350,000 Marketable Securities 50,000 Inventory 370,000 Total Current Assets $ 800,000 Net Plant and Equipment 800,000 Total Assets $ 1,600,000 Liabilities and Stockholders Equity Accounts Payable $ 50,000 Notes Payable 250,000 Total Current Liabilities $ 300,000 Long Term Liabilities 300,000 Total Liabilities $ 600,000 Common Stock 400,000 Retained Earnings 600,000 Total Stockholders Equity $ 1,000,000 Total Liabilities and Stockholders Equity $ 1,600,000 The firm is looking to expand its operations by 10 of the firm's net property, plant, and equipment (Calculate this amount by taking 10 of the property, plant, and equipment figure that appears on the firm's balance sheet ) The estimated life of this new property, plant, and equipment will be 12 years The salvage value of the equipment will be 5 of the property, plant and equipment's cost The annual EBIT for this new project will be 18 of the project's cost The company will use the straight line method to depreciate this equipment Also assume that there will be no increases in net working capital each year Use 35 as the tax rate in this project The hurdle rate for this project will be the WACC that you are able to find on a financial website, such as If you are unable to find the WACC for a company, contact your instructor He or she will assign you a WACC rate Calculations for the amount of property, plant, and equipment and the annual depreciation for the project calculations that convert the project's EBIT to free cash flow for the 12 years of the project The following capital budgeting results for the project Net present value Internal rate of return Discounted payback period

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SAXTON COMPANY

Balance Sheet

As of December 31, 2009

Assets

Cash $ 30,000

Accounts Receivable.. 350,000

Marketable Securities .. 50,000

Inventory. 370,000

____________

Total Current Assets. $ 800,000

Net Plant and Equipment.. 800,000

____________

Total Assets.$ 1,600,000

Liabilities and Stockholders Equity

Accounts Payable..$ 50,000

Notes Payable.. 250,000

_____________

Total Current Liabilities..$ 300,000

Long Term Liabilities 300,000

____________

Total Liabilities ..$ 600,000

Common Stock. 400,000

Retained Earnings.. 600,000

____________

Total Stockholders Equity.$ 1,000,000

Total Liabilities and Stockholders Equity $ 1,600,000

The firm is looking to expand its operations by 10% of the firm's net property, plant, and equipment. (Calculate this amount by taking 10% of the property, plant, and equipment figure that appears on the firm's balance sheet.)
The estimated life of this new property, plant, and equipment will be 12 years. The salvage value of the equipment will be 5% of the property, plant and equipment's cost.
The annual EBIT for this new project will be 18% of the project's cost.
The company will use the straight-line method to depreciate this equipment. Also assume that there will be no increases in net working capital each year. Use 35% as the tax rate in this project.
The hurdle rate for this project will be the WACC that you are able to find on a financial website, such as If you are unable to find the WACC for a company, contact your instructor. He or she will assign you a WACC rate.
Calculations for the amount of property, plant, and equipment and the annual depreciation for the project
calculations that convert the project's EBIT to free cash flow for the 12 years of the project.
The following capital budgeting results for the project
1. Net present value
2. Internal rate of return
3. Discounted payback period.