So you want to start a puzzle company. Of course it's a Disney puzzle company. You plan to launch your products during the upcoming flu season while everyone is hunkered down in their homes, hopefully putting together your puzzles. Mickey & Friends Disney DowD34 Each of your puzzles are made by Package Right in Tipton, Indiana. The puzzle.box, and outer sleeve cost $5.78 per puzzle to manufacture. Shipping to your headquarters in Utah will cost $0.35 per puzzle. Your new puzzle headquarters will be in Mapleton, Utah and consist of offices and a small warehouse space for order fulfillment. In total your new headquarters will cost $2,300,000. Your new headquarters will be fully depreciated over the five-year project. Each puzzle is expected to sell for $24.99 and customers cover all shipping costs. The company has a tax rate of 23%. You will also need to invest $1,200,000 in inventory to be ready to go live. In a recent presentation to investors, you projected sales of 50.000 puzzles in year one, followed by annual growth of 32% in year two and year three and 15% in year four and five. At the end of year five, it is likely you will be able to sell the company for $2.100,000. The government two year bond is trading at 1.6% while the five year bond trades at 3.2%. Last year, the US equity markets rose by 8.5% which was the same as it has been for the last five years. Other toy companies that trade in public markets have a beta of approximately 1.2. You recently borrowed $1,200.000 from the bank at 5.5% for ten years. Your puzzle company has no preferred stock but its equity was raised by issuing common stock at $35 per share with a 7% flotation cost on a base of 100.000 shares. Disney Puzzle Company Five Year Estimates 1 2 0 3 5 Investments Headquarters Working Capital (Inventory) Units Revenue Revenue per Puzzle - Cost of Goods Sold Manufacture Shipping - Depreciation Pre-Tax Income - Taxes After Tax Income + Depreciation After Tax Cash Flow Terminal Value Total Discounting Cash Flows WACC Net Present Value IRR Payback Period Period 0 Period 1 Period 2 Period 3 Period 4 0111 Cost of Equity rfr beta MRP Cost of Equity Cost of Debt Bank loan (1-t) Cost of Debt Weight of Equity Equity Capital Equity Weight Weight of Debt Debt Capital Debt Weight So you want to start a puzzle company. Of course it's a Disney puzzle company. You plan to launch your products during the upcoming flu season while everyone is hunkered down in their homes, hopefully putting together your puzzles. Mickey & Friends Disney DowD34 Each of your puzzles are made by Package Right in Tipton, Indiana. The puzzle.box, and outer sleeve cost $5.78 per puzzle to manufacture. Shipping to your headquarters in Utah will cost $0.35 per puzzle. Your new puzzle headquarters will be in Mapleton, Utah and consist of offices and a small warehouse space for order fulfillment. In total your new headquarters will cost $2,300,000. Your new headquarters will be fully depreciated over the five-year project. Each puzzle is expected to sell for $24.99 and customers cover all shipping costs. The company has a tax rate of 23%. You will also need to invest $1,200,000 in inventory to be ready to go live. In a recent presentation to investors, you projected sales of 50.000 puzzles in year one, followed by annual growth of 32% in year two and year three and 15% in year four and five. At the end of year five, it is likely you will be able to sell the company for $2.100,000. The government two year bond is trading at 1.6% while the five year bond trades at 3.2%. Last year, the US equity markets rose by 8.5% which was the same as it has been for the last five years. Other toy companies that trade in public markets have a beta of approximately 1.2. You recently borrowed $1,200.000 from the bank at 5.5% for ten years. Your puzzle company has no preferred stock but its equity was raised by issuing common stock at $35 per share with a 7% flotation cost on a base of 100.000 shares. Disney Puzzle Company Five Year Estimates 1 2 0 3 5 Investments Headquarters Working Capital (Inventory) Units Revenue Revenue per Puzzle - Cost of Goods Sold Manufacture Shipping - Depreciation Pre-Tax Income - Taxes After Tax Income + Depreciation After Tax Cash Flow Terminal Value Total Discounting Cash Flows WACC Net Present Value IRR Payback Period Period 0 Period 1 Period 2 Period 3 Period 4 0111 Cost of Equity rfr beta MRP Cost of Equity Cost of Debt Bank loan (1-t) Cost of Debt Weight of Equity Equity Capital Equity Weight Weight of Debt Debt Capital Debt Weight