For the next question (part 1 and part 2) consider a project with the following data:

Part 1--- The 5-year project requires equipment that costs $100,000. If undertaken, the shareholders will contribute $20,000 cash and borrow $80,000 at 6% with an interest-only loan with a maturity of 5 years and annual interest payments. The equipment will be depreciated straight-line to zero over the 5-year life of the project. There will be a pre-tax salvage value of $5,000. There are no other start-up costs at year 0. During years 1 through 5, the firm will sell 25,000 units of product at $5; variable costs are $3; there are no fixed costs. What is the NPV of the project using the WACC methodology? This is the answer that was provided but I do not have a financial calculator: Using the cash flow menu of a financial calculator: CF0 = - $100,000; C01 = $39,800; F01 = 4; C02 = $43,100; I = rWACC = 8.74; NPV = $58,028.68.
Can you please show me that work without the financialcalculator?

Transcribed Image Text:

OCF $100,000 OCF4 S39,80025,000 (S5 S3) ( 34)S20,000 0.34 K,,asset- 12% K-, Kruen 8784% ras ra eo ur $4310 t Socso tv rati o od Risk-free rate τ Debt-to-equity ratio 4 2%