Question

A firm has projected the following financials for a possible project: YEAR 0 1 2 3...

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

YEAR 0 1 2 3 4 5
Sales 134,539.00 134,539.00 134,539.00 134,539.00 134,539.00
Cost of Goods 68,336.00 68,336.00 68,336.00 68,336.00 68,336.00
S&A 30,000.00 30,000.00 30,000.00 30,000.00 30,000.00
Depreciation 22,704.00 22,704.00 22,704.00 22,704.00 22,704.00
Investment in NWC 1,201.00 511.00 511.00 511.00 511.00 511.00
Investment in Gross PPE 113,520.00


The firm has a capital structure of 38.00% debt and 62.00% equity. The cost of debt is 9.00%, while the cost of equity is estimated at 14.00%. The tax rate facing the firm is 38.00%. (Assume that you can't recover the final NWC position in year 5. i.e. only consider the change in NWC for each year)

A) What is the WACC for the project?

B) What is the cash flow for year 0? (express answer as a negative...)

C) What is the cash flow for year 1?

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

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Answer #1

A)

B) and C)

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