Question #1: Weighted Average Cost of Capital (WACC) & Capital Budget Analysis
a. Based on the Inputs below, prepare a Capital Budget Analysis for this Base Case using the Net Present Value, Internal Rate of Return, Profitability Index and Payback in year's methods, determining whether the project is feasible.
b. Please complete assignment in spreadsheet format and show calculations where possible (Capital Budget Analysis example has been attached)
c. After all calculations are completed and all cost determined, should the Base Case Project be considered or not?
Inputs:
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Weighted Average Cost of Capital (WACC) = Debt is 75%
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Equity is 25% of this firm's capital structure
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Interest rate on the debt is 7.5%
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Firm's tax rate is 30%
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Firm's beta is 1.25
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Risk Free Rate is 2.0%
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Market Return Rate is 11.0%.
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Project Investment Outlay, Year 0 = $1,000,000
Project Investment Life = 10 years
Project Depreciation = $100,000 / year
Project Salvage Value = $30,000
Working Capital Base of Annual Sales = 10%
Expected inflation rate per year = 3.0%
Project Tax Rate = 30%
Units sold per year = 40,000
Selling Price per Unit, Year 1 = $40.00
Fixed operating costs per year excluding depreciation = $175,000
Manufacturing (Variable) costs per unit, Year 1 = $30.00
Question #2: (AFN) Additional Funds Needed - Forecasting
Forecast the firm's additional funds needed (AFN) for next year. The firm is operating at full capacity. Data to use for the forecast are shown below.
Based on the AFN equation, what is the AFN for the coming year? (show calculations)
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Last year's sales = S0
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$200,000
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Last year's accounts payable
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$50,000
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Sales growth rate = g
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20%
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Last year's notes payable
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$15,000
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Last year's total assets = A0*
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$135,000
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Last year's accruals
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$20,000
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Last year's profit margin= PM
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10.0%
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Target payout ratio
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50.0%
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Spreadsheet is just showing example.
Attachment:- spreadsheet-examples.xlsx