You are the CFO of WBS, an engineering company. WBS is planning to expand its business abroad. You need to decide whether the new project is feasible and whether it will create value over time.

The project has an estimated lifetime of 10 years, after which the company will decide whether to stay abroad permanently or close-down its foreign activities. WBS has estimated that expanding abroad will have the following costs: 10,500,000 as initial investment at the start of the project and 100,000 each year throughout the next 10 years.

Cash flows from foreign activities are estimated to be: 1,000,000 the first year, the cash flows are expected to increase by 8% each year after year1. Assume all revenues are received at each year end.

Objectives

1. Estimate the cost of capital for the company (WACC), knowing that the company has 60% equity 40% debt capital:

the companys beta is 1.6, the T-bill is 3% and the return on the market is 11%

cost of debt is 8% and tax rate 18%.

(15 marks)

2. Use Net Present Value (NPV), Internal Rate of Return (IRR) and the Profitability Index (PI) by discounting with the WACC found in step 1, to decide whether WBS should expand abroad and explain each step and decision rule (up to 400 words).

(45 marks)

3. Comment on your findings and conclude (600 words).

(40 marks)

Requirements

Word limit 1000, excluding indices, references and appendices

You are expected to make full use of all academic sources, including peer reviewed academic journal articles. Other sources include books and financial press. Access to most academic articles can be gained using Google Scholar or the University Library.

Your coursework should include at least 5 academic articles from peer-reviewed journals.

The assignment will be marked on the basis of a) the quality of the analysis provided and the connection of theory and practice, b) appropriate evidence, literature and conclusion, c) structure andpresentation

The Coursework is to be submitted via Turnitin, provided via the modules Blackboard site

The coursework is expected to be thoroughly completed and formatted.