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The shoes was expected to sell for $ 81 per unit and had projected sales of 4300 units in the first year, with a projected (Most-Likely scenario) 25.0 % growth rate per year for subsequent years.

A total investment of $ 978,000 for new equipment was required.

The equipment had fixed maintenance contracts of $ 348,918 per year with a salvage value of $ 131,832 and variable costs were 14 % of revenues.

Consider both the Best-Case and Worst-Case scenarios in the analysis with growth rates of 35.00 % and 2.50 % respectively.

The new equipment would be depreciated to zero using straight line depreciation.

The new project required an increase in working capital of $ 125,100 and $ 16,263 of this increase would be offset with accounts payable. Company currently has 1052000 shares of stock outstanding at a current price of $ 76.00.

Management believes that its equity beta is 1.11.

The company also has 112000 bonds outstanding, with a current price of $ 1,068.00.

The bonds pay interest semi-annually at a coupon rate of 5.30 %.

The bonds have a par value of $1,000 and will mature in 14 years.

The average corporate tax rate was 36 %. Management believes the S&P 500 is a reasonable proxy for the market portfolio.

Therefore, the cost of equity is calculated using the company's equity beta and the market risk premium based on the S&P 500 annual expected rate of return

Calculate the monthly expected market return using 5 years of past monthly price data available in the worksheet Marketdata.

This would then be multiplied by 12 to estimate the annual expected rate.

Remembered that if the expected rate of return for the market was too low, too high, or negative, a forward looking rate of an historical average of about 9.5% would have to be used, as the calculated value for the current 5-year period may not be representative of the future. Balky would consider a E(Rm) between 8-12% acceptable.

Calculate the market risk premium:

E(Rm) - Rf from the previous calculations using the risk-free rate data available in the worksheet Marketdata. Note that the risk-free rate was on an annual basis. Calculate the rate at which the project would have to be discounted to calculate the Net Present Value (NPV) of the proposed project based on the decision of raising capital and the current capital market environment.

Year 0 Timeline: II. Net Investment Outlay - Initial CFS Price of Equipment (125,100.00) Change in NWC III. Cash Flows from Operations Revenue Generation Unit Sales Unit Sale Price Revenues 43001 81.00 348.300.00 Costs Variable Costs Fixed Costs Depreciation Tarnings Before Taxes Taxes Net Income Depreciation Net operating Ch's IV. Terminal Cash Flows Salvage Value Tax on Salvage Value Return of NWC V. Final Cash Flow Cash Flows Present Value of CFs NPV of Project = Company B = Risk Free Rate (R2) = 1.11 1.10% Returns 1 S&P 500 Closing Data 2 Date Adjusted Close 3 8/1/2021 5770.17 1 7/1/2021 5602.02 6/1/2021 5569.40 5 5/1/2021 5429.85 7 4/1/2021 5327.92 3 3/1/2021 5274.28 2/1/2021 5189.25 0 1/1/2021 5174.26 1 12/1/2020 5217.65 2 11/1/2020 5232.72 3 10/1/2020 5221.65 4 9/1/2020 5124.30 5 8/1/2020 4964.97 6 7/1/2020 4879.43 7 6/1/2020 4817.27 8 5/1/2020 4734.61 9 4/1/2020 4680.11 0 3/1/2020 4724.47 1 2/1/2020 4679.97 2 1/1/2020 4563.88 3 12/1/2019 4590.85 4 11/1/2019 4468.40 5 10/1/2019 4341.29 9/1/2019 8/1/2019 7/1/2019 6/1/2019 5/1/2019 4/1/2019 3/1/2019 2/1/2019 1/1/2019 12/1/2018 11/1/2018 10/1/2018 9/1/2018 8/1/2018 7/1/2018 6/1/2018 5/1/2018 4/1/2018 3/1/2018 2/1/2018 1/1/2018 12/1/2017 11/1/2017 10/1/2017 9/1/2017 8/1/2017 7/1/2017 6/1/2017 5/1/2017 4/1/2017 3/1/2017 2/1/2017 1/1/2017 12/1/2016 11/1/2016 10/1/2016 9/1/2016 8/1/2016 4359.60 4348.82 4300.14 4274.70 4288.13 4278.59 4165.49 4133.27 4160.91 4102.39 4079.49 3965.42 3945.38 3956.90 3821.22 3835.44 3739.72 3645.62 3603.75 3638.58 3611.29 3600.18 3637.09 3597.98 3592.64 3498.62 3500.75 3415.11 3401.39 3313.24 3297.49 3314.64 3322.41 3266.71 3187.51 3195.10 3193.12 3189.00 Expected Return Std. Dev Year 0 Timeline: II. Net Investment Outlay - Initial CFS Price of Equipment (125,100.00) Change in NWC III. Cash Flows from Operations Revenue Generation Unit Sales Unit Sale Price Revenues 43001 81.00 348.300.00 Costs Variable Costs Fixed Costs Depreciation Tarnings Before Taxes Taxes Net Income Depreciation Net operating Ch's IV. Terminal Cash Flows Salvage Value Tax on Salvage Value Return of NWC V. Final Cash Flow Cash Flows Present Value of CFs NPV of Project = Company B = Risk Free Rate (R2) = 1.11 1.10% Returns 1 S&P 500 Closing Data 2 Date Adjusted Close 3 8/1/2021 5770.17 1 7/1/2021 5602.02 6/1/2021 5569.40 5 5/1/2021 5429.85 7 4/1/2021 5327.92 3 3/1/2021 5274.28 2/1/2021 5189.25 0 1/1/2021 5174.26 1 12/1/2020 5217.65 2 11/1/2020 5232.72 3 10/1/2020 5221.65 4 9/1/2020 5124.30 5 8/1/2020 4964.97 6 7/1/2020 4879.43 7 6/1/2020 4817.27 8 5/1/2020 4734.61 9 4/1/2020 4680.11 0 3/1/2020 4724.47 1 2/1/2020 4679.97 2 1/1/2020 4563.88 3 12/1/2019 4590.85 4 11/1/2019 4468.40 5 10/1/2019 4341.29 9/1/2019 8/1/2019 7/1/2019 6/1/2019 5/1/2019 4/1/2019 3/1/2019 2/1/2019 1/1/2019 12/1/2018 11/1/2018 10/1/2018 9/1/2018 8/1/2018 7/1/2018 6/1/2018 5/1/2018 4/1/2018 3/1/2018 2/1/2018 1/1/2018 12/1/2017 11/1/2017 10/1/2017 9/1/2017 8/1/2017 7/1/2017 6/1/2017 5/1/2017 4/1/2017 3/1/2017 2/1/2017 1/1/2017 12/1/2016 11/1/2016 10/1/2016 9/1/2016 8/1/2016 4359.60 4348.82 4300.14 4274.70 4288.13 4278.59 4165.49 4133.27 4160.91 4102.39 4079.49 3965.42 3945.38 3956.90 3821.22 3835.44 3739.72 3645.62 3603.75 3638.58 3611.29 3600.18 3637.09 3597.98 3592.64 3498.62 3500.75 3415.11 3401.39 3313.24 3297.49 3314.64 3322.41 3266.71 3187.51 3195.10 3193.12 3189.00 Expected Return Std. Dev