Your Swedish friend Oskar is thinking about starting a chain of food trucks $$ hot dog burritos $($this is a real thing

in Sweden called a Tunnbr$$dsrulle$).$ This is Swedish street food, and the specialty is a burrito with mashed

potatoes, a hot dog and shrimp salad inside. Sounds good right?

Anyway, Oskar needs your help deciding if this is a good

business decision! He bought a used food truck for

$$60,000$ last year and did a test run. The burritos were

pretty popular, especially among the late$-$night dirty $6$th

crowd. That truck is pretty old and headed to the scrap

yard soon. His idea would involve buying $3$ new fancy,

decked out food trucks $$ blue and yellow of course; these

will cost him $$350,000$ total. He is going to straight$-$line

depreciate the trucks over the life of the project. He

figures after $5$ years it will be time to move on to bigger

and better things, so the food truck project will end. At

that point, he could probably sell the trucks for around

$$65,000$ each.

He expects to sell around $40,000$ burritos the first year. He thinks people will be happy to pay $$12$ for a unique

burrito. After that, he predicts $12\%$ growth in sales since he is sure the Swedish burritos will be a hit. Each burrito

will have a variable cost of $$8.$ He will need to pay himself and two others full$-$time and there will be additional

fixed costs; so fixed costs might be around $$140,000$ a year. Oskar will make an initial investment in working

capital of $$35,000,$ and he doesn$$t expect to make more investments in net working capital over the life of the

project. The tax rate is $21\%$ ESTIMATE THE COST OF DEBT

Below Calculate the weighted average cost of debt using book value weights AND using market value weights.

ESTIMATE WACC

In addition to the bonds, Yum! has another $$7\mathrm{.}2$ billion in debt $($book value $=$ market value$).$ The cost of that debt

is similar to the weighted average cost of the bonds above.

You now have all the necessary information to calculate the weighted average cost of capital for Yum!.

$$ Calculate WACC using market value weights.

$$ Answer the following question: In this case, why couldn$$t you use book value weights? But even if you could

have, why would you use market value anyway?

PART $2$ VALUATION

$$ On a second tab, calculate OCF, change in NWC$,$ salvage cash flow, cash flow from assets and NPV for the

project.

$$ Answer the following questions:

o Should Oskar invest in the Swedish food trucks? Why or why not?

o If Oskar could finance using $100\%$ debt $($at a similar cost to the weighted average cost of the bonds for

Yum!$),$ would his decision change? Why or why not? is information on Yum!$\text{'}$s bonds: