2. What yearly cash flows are relevant for this investment decision? Do not forget the effect of taxes and the initial investment amount. Complete the table below using the detail summarized below:
   2. Investment:
      2. Initial Investment - $16M 2016, $2M 2017
      4. Working Capital - 10% of Incremental Sales
   5. Operating Savings - $2M 2017, $3.5M 2018-2022
   7. Sales Revenue - $4M 20017, $10M 2018-2022
   9. Expenses - CGS – 75% of Revenue, SG&A - 5% of Revenue
   11. Salvage:
       2. Working Capital - recoverable at cost
       4. Initial Investment - 10% or $1.8M before tax, $1.08M after taxes
   14. Depreciation – Straight Line over 6 years, no salvage, start in 2017
5. What discount rate should Worldwide Paper Company (WPC) use to analyze those cash flows? Explain your recommended rate and the assumptions that you used to estimate it. Calculate WAAC cost of debt cost of equity ?
7. What is the net present value (NPV) and internal rate of return (IRR) for the investment? How do you interpret these numbers?

Additional info

Cost of capital info

Interest rate jan 15 2016

Bank loan rate(libor)                               market risk premium

1 year     1.15%                                           historical average 6.0%

Gov bonds                                              corporate bonds

1 years   0.49%                                       Aaa      2.45%

5 years   1.46%                                        Aa         3.38%

10 years 2.04%                                      A           3.85%                    

30 years   2.82%                                   Baa    5.05%

World wide paper financial data

Balance sheet account

Bank loan payable (LIBOR+ 1%)        500

Long term debt                                   2500

Common equity                                   500

Retained earnings                               2000

Per share data

Share outstanding                             500

Book value per sahare                      5

Recent market value per share         24

Other

Bond rating      A

Beta                1.10