Question

A firm has projected the following financials for a possible project:

YEAR	0	1	2	3	4	5
Sales		123,691.00	123,691.00	123,691.00	123,691.00	123,691.00
Cost of Goods		64,421.00	64,421.00	64,421.00	64,421.00	64,421.00
S&A		30,000.00	30,000.00	30,000.00	30,000.00	30,000.00
Depreciation		22,415.20	22,415.20	22,415.20	22,415.20	22,415.20
Investment in NWC	1,202.00	588.00	588.00	588.00	588.00	588.00
Investment in Gross PPE	112,076.00

The firm has a capital structure of 41.00% debt and 59.00% equity. The cost of debt is 9.00%, while the cost of equity is estimated at 12.00%. The tax rate facing the firm is 37.00%. (Assume that you can't recover the final NWC position in year 5. i.e. only consider the change in NWC for each year)

What is the NPV of the project? (Hint: Be careful about rounding the WACC here!)

Answer 1

Sales	123691.00
Cost of goods sold	64421.00
S&A	30000.00
Depreciation	22415.20
Profit before tax	6854.80
(-) Tax @37%	2536.28
Profit after tax	4318.52
(+) Depreciation	22415.20
(-) NWC	588.00
Net Cash inflow	26145.72

WACC = ( Cost of equity * weight of equity ) + ( Cost of debt * Weight of debt ) = ( 12%*59% ) + ( 9%*41% )	10.77%
NPV = 26145.72*(1-(1+10.77%)^-5)/10.77% - 112076 - 1202	-16084.41