The CEO of the company you chose for your stock projects this semester asked you to analyze

the possibility of acquiring a smaller business operation from another company.

The purchase will cost $$65$ million in year zero and will also require $$2\mathrm{.}5$ million of net working

capital. The company is using MACRS $3-$years depreciation $($calculate straight$-$line depreciation

in addition to MACRS as a bonus for extra points $3$ points$),$ and a book value is $$7$ million.

Assume you can sell the business in four years for $$15$ million.

The new business operation will generate $$50$ million in revenue each year, which will take $$30$

million in costs annually.

Use the $21\%$ marginal tax rate.

$(1)$ Compute the cash flows and depreciation for the project.

$(2)$ Assume cost of dept is $1\mathrm{.}4\%,$ cost of capital $$ from your project $1$ and financing

between E and D is $35\%$ and $65\%$ accordingly, calculate WACC for your company. $($bonus

for $5$ points$)$

$(3)$ Use the cost of capital calculated in #$2$ above and a payback benchmark of $2\mathrm{.}5$ years.

Compute the following decision statistics and make accept$/$reject conclusion.

A$.$ NPV

B$.$ IRR

C$.$ Payback

D$.$ Profitability index

E$.$ MIRR $($bonus for $7$ points$)$

$(4)$ Make your recommendation to the CEO, explaining why and what decision should be

made with regards to acquiring a small business operation from another company.

You can use the NPV$()$ function and IRR$()$ function to compute the NPV and IRR of the project.

Turn in a spreadsheet that computes the answers, keeping all the formulas and

calculations in $($please include not just results, but also formulas, so that I can

see how you calculated it$.$ Formulas are important!$)$