The Reef Corporation has an opportunity to sell shark repellant. Oscar, the CEO, would like Sykes, the vice president, to evaluate the project. Oscar owns all 150,000 outstanding shares of the Reef Corporation. Oscar plans to receive $1.166 in dividends at the end of the year. Oscar plans to grow the dividends at 6% a year. Oscar just received $1.10 in dividends. Frankie, an independent financial analyst, has estimated that the bonds should sell for $1075. Frankie has estimated that the stock should sell for $14.75. Frankie has estimates the beta to be 1.113. Frankie estimates the market will return 13%. Lino, the godfather, will have an antidote to the repellant after four years. Don Feinberg owns all 1,400 outstanding bonds. Don Feinberg receives $35 interest payments every six months. Lenny, the operations manager, has estimated that they will need 4 pieces of equipment that cost $200,000 each. Installation will be a flat $100,000. Lenny estimated that they will need $125,000 more in inventory. Lenny believes that the equipment will be worth $295,000 after the four year run. Lenny has estimated the cost will be 30 per unit. Lenny estimates that fixed cost will be $10,000. Lola, the marking manager, believes the repellant will sell for $1. Lola believes the demand will be able to sell 380,000 in year 1; 440,000 in year 2; 550,000 in year 3; and 580,000 in year 4. Angie, the CFO, says the equipment will fall under a 3-year MACRS. Angie estimates that accounts payable will increase by $90,000 and accounts receivables will increase by $40,000. Angie has estimated the tax rate as a flat 30%. The Reef Corporation bonds mature in 8 years. The par value on the bonds is $1000. The coupon rate is 7% on the bonds. Treasury bonds yield 5%.

MACRS
Year	3-year		5-Year		7-Year
1	33%		20%		14%
2	45		32		25
3	15		19		17
4	7		12		13
5			11		9
6			6		9
7					9
8					4

Please just fill in the answers for 1-20.

2 3 4 Capital Budgeting Worksheet Year 0 Initial Outlay Cost #1 Installation #2 NWC #3 Total #4 OCF Sales Cost Depreciation OIBT Tax OIAT Depreciation OCF 380000 -124000 -297000 -41000 12300 -28700 297000 268300 440000 -142000 -405000 -107000 32100 -74900 405000 330100 550000 -175000 -135000 240000 -72000 168000 135000 303000 #5 #6 #7 #8 #9 #10 #11 #12 TCF NWC Salvage Tax Total #13 #14 #15 #16 $ 330,100.00 $ 303,000.00 $ 577,600.00 NCF $ (975,000.00) $ 268,300.00 Use l = 15.5%, regardless of the number you got for WACC #17 What is the net present value? #18 What is the internal rate of return? #19 What is the modified rate of return? #20 Should you invest? 2 3 4 Capital Budgeting Worksheet Year 0 Initial Outlay Cost #1 Installation #2 NWC #3 Total #4 OCF Sales Cost Depreciation OIBT Tax OIAT Depreciation OCF 380000 -124000 -297000 -41000 12300 -28700 297000 268300 440000 -142000 -405000 -107000 32100 -74900 405000 330100 550000 -175000 -135000 240000 -72000 168000 135000 303000 #5 #6 #7 #8 #9 #10 #11 #12 TCF NWC Salvage Tax Total #13 #14 #15 #16 $ 330,100.00 $ 303,000.00 $ 577,600.00 NCF $ (975,000.00) $ 268,300.00 Use l = 15.5%, regardless of the number you got for WACC #17 What is the net present value? #18 What is the internal rate of return? #19 What is the modified rate of return? #20 Should you invest