The firm is looking to expand its operations by 10% of the firms net property, plant, and equipment. (Calculate this amount by taking 10% of the property, plant, and equipment figure that appears on the firms 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 equipments cost.

The annual EBIT for this new project will be 18% of the projects 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 Gurufocus.com.

-Assume that Saxton's Net Income is a Perpetuity. Then using the firm's Return On Equity as its Required Rate of Return, determine the value of the Saxton Company based upon its Net Income.

So calculate for the amount of property, plant, and equipment and the annual depreciation for the project

Show your calculations that convert the projects EBIT to free cash flow for the 12 years of the project.

Show the following capital budgeting results for the project

Calculate:

-Net present value

-Internal rate of return

-Discounted payback period.

Include a discussion of the results that you calculated above, including a recommendation for acceptance or rejection of the project

Income Statement

For the Year Ended December 31, 2009

Sales (all on credit) $ 4,000,000

Cost of Goods Sold3,000,000

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Gross Profit.$ 1,000,000

Selling and Administrative Expenses. 450,000

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Operating Profit $ 550,000

Interest Expense 50,000

Extraordinary Loss. 200,000

Earnings Before Taxes$ 300,000

Income Taxes (33%). 100,000

Net Income.$ 200,000

SAXTON COMPANY

Balance Sheet

As of December 31, 2009

Assets

Cash $ 30,000

Accounts Receivable.. 350,000

Marketable Securities .. 50,000

Inventory. 370,000

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Total Current Assets. $ 800,000

Net Plant and Equipment.. 800,000

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Total Assets.$ 1,600,000

Liabilities and Stockholders Equity

Accounts Payable..$ 50,000

Notes Payable.. 250,000

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Total Current Liabilities..$ 300,000

Long Term Liabilities 300,000

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Total Liabilities ..$ 600,000

Common Stock. 400,000

Retained Earnings.. 600,000

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Total Stockholders Equity.$ 1,000,000

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