Question
Year 1 Year 2 Year 3 Year 4 Year 5 Units Sales 75,000 95,000 125,000 130,000 140,000 Equipment Cost 61,000,000 Salvage value Units Price 650
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | ||||
| Units Sales | 75,000 | 95,000 | 125,000 | 130,000 | 140,000 | |||
| Equipment Cost | 61,000,000 | |||||||
| Salvage value | ||||||||
| Units Price | 650 | |||||||
| Variable cost (per unit) | 300 | |||||||
| Fixed costs (per year) | 4,300,000 | |||||||
| Tax rate | 35% | |||||||
| NWC (% of sales) | 15% | |||||||
| Required return | 12% | |||||||
| Required Payback Period (years) | 3 | |||||||
| MACRS Schedule | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 |
| 3-year | 33.33% | 44.45% | 14.81% | 7.41% | ||||
| 5- year | 20.00% | 32.00% | 19.20% | 11.52% | 11.52% | 5.76% | ||
| 7-year | 14.29% | 24.49% | 17.49% | 12.49% | 8.93% | 8.92% | 8.93% | 4.46% |
Task 2: Weighted Average Cost of Capital (WACC) You are given the following information for Twitter, Inc. Assume the companys tax rate is 35%. Debt: 40,000 7.5% coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for $1050; the bonds make semiannual payments. Common stock: 750,000 shares outstanding, selling for $56 per share; the beta is 0.85. Preferred stock: 1,400,000 shares of 5% preferred stock, currently selling for $26 per share. Market: 7% market risk premium and 3.5% risk-free rate. Questions: 8. What is the company's after-tax cost of debt? Answer: __________________________________________________________ (5 point) 9. What is the company's cost of common stock? Answer: __________________________________________________________ (5 point) 10. What is the company's cost of preferred stock? Answer: __________________________________________________________ (5 point) 11. What is the company's WACC? Answer: __________________________________________________________ (10 point)
Please show working
| Base Case | Best Case | Worst Case | ||||
| 0% | 20% | -20% | ||||
| Change in Unit Sales (%) | ||||||
| Equipment Cost ($) | ||||||
| Variable cost (per unit) | ||||||
| Best Case Scenario | ||||||
| Pro Forma Income Statements | ||||||
| Year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Revenues | ||||||
| Variable costs | ||||||
| Fixed costs | ||||||
| Depreciation | ||||||
| EBIT | ||||||
| Taxes (0%) | ||||||
| Net income | ||||||
| OCF | ||||||
| Net Working Capital | ||||||
| Year | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Initial NWC | ||||||
| Ending NWC | ||||||
| NWC cash flow | ||||||
| Salvage Value | ||||||
| Market value of salvage | ||||||
| Book value of salvage | ||||||
| Taxes on sale: | ||||||
| Aftertax salvage value: | ||||||
| Project Cash Flows | ||||||
| Year | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| OCF | ||||||
| Change in NWC | ||||||
| Capital spending | ||||||
| Total cash flow | ||||||
| Cumulative cash flow | ||||||
| Payback Period | ||||||
| NPV | ||||||
| IRR | ||||||
| Worst Case Scenario | ||||||
| Pro Forma Income Statements | ||||||
| Year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Revenues | ||||||
| Variable costs | ||||||
| Fixed costs | ||||||
| Depreciation | ||||||
| EBIT | ||||||
| Taxes (0%) | ||||||
| Net income | ||||||
| OCF | ||||||
| Net Working Capital | ||||||
| Year | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Initial NWC | ||||||
| Ending NWC | ||||||
| NWC cash flow | ||||||
| Salvage Value | ||||||
| Market value of salvage | ||||||
| Book value of salvage | ||||||
| Taxes on sale: | ||||||
| Aftertax salvage value: | ||||||
| Project Cash Flows | ||||||
| Year | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| OCF | ||||||
| Change in NWC | ||||||
| Capital spending | ||||||
| Total cash flow | ||||||
| Cumulative cash flow | ||||||
| Payback Period | ||||||
| NPV | ||||||
| IRR | ||||||
| Question 6 | ||||||
| Uncertainty | NPV | IRR | PBP | |||
| Best Case | 20% | |||||
| Question 7 | ||||||
| Uncertainty | NPV | IRR | PBP | |||
| Worst Case | -20% | |||||
| Decision | ||||||
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Stock Market Investing Playbook
Authors: David Reese
1st Edition
1951595270, 978-1951595272
