Question

Investment minus$9 comma 272 comma 869 Net working capital change minus$739 comma 000 $739 comma 000 Operating cash flow $3 comma 232 comma 000 $3 comma 915 comma 000 $4 comma 528 comma 000 Salvage $539 comma 000 At what adjusted WACCs will the company accept this project? Hint: Find the IRR of the project, and use it as the maximum adjusted WACC for accepting the project.

Answer #1

Maximum adjusted WACC for accepting the project **= 12.67
%**

**Method of solving using excel sheet**

Investment = 9,272,869 + Increase in Net working capital 739,000 = - 10011869 ........ ( enter this value in A1 - Excel sheet)

Operating cash flow

Year - 1 .......3,232,000 ( enter this value in A2 )

Year - 2 .......3,915,000 ( enter this value in A3)

Year - 3 .......4,528,000 + salvage of 539000 + working capital recovery 739000 = 5806000 ( enter this value in A4)

now enter the syntax ............ = IRR(A1:A4) **= 12.67
%**

Apply WACC in IRR.
Leeward Sailboats is reviewing the following new boat
line:
Category
T0
T1
T2
T3
Investment
−$10,133,308
Net working capital change
−$592,000
$592,000
Operating cash flow
$3,691,000
$4,307,000
$4,929,000
Salvage
$349,000
At what adjusted WACCs will the company accept this
project?
Hint: Find the IRR of the project, and use it as the maximum
adjusted WACC for accepting the project.
a) What is the IRR of the project?
b)
At what adjusted WACCs will the company accept...

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Net working capital change
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Operating cash flow
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$1,357,000
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Salvage
$ 249,000
Should Brawn accept or reject this project at an adjusted WACC
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$ 200,000
2) New equipment cost
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9) Sales increase per year
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3) Equipment ship & install cost
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(a) Develop proforma Project Income
Statement Using Excel Spreadsheet
(b) Compute Net Project Cash
flows, NPV, IRR and PayBack Period
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8) Sales for first year (1)
$ 200,000
2) New equipment cost
$ (200,000)
9) Sales increase per year
4%
3) Equipment ship & install cost
$ (25,000)
10) Operating cost:
$ (120,000)
4) Related start up cost
$ (5,000)
(60 Percent of Sales)
-60%
5) Inventory increase
$ 25,000
11) Depreciation (Straight Line)/YR
$ (60,000)
6) Accounts Payable...

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(a) Develop proforma Project Income
Statement Using Excel Spreadsheet
(b) Compute Net Project Cash
flows, NPV, IRR and PayBack Period
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8) Sales for first year (1)
$ 200,000
2) New equipment cost
$ (200,000)
9) Sales increase per year
4%
3) Equipment ship & install cost
$ (25,000)
10) Operating cost:
$ (120,000)
4) Related start up cost
$ (5,000)
(60 Percent of Sales)
-60%
5) Inventory increase
$ 25,000
11) Depreciation (Straight Line)/YR
$ (60,000)
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