1) Calculate the weighted average cost of capital for Corporation B as of yearend 20X3. Corporation B...
Question:
1) Calculate the weighted average cost of capital for Corporation B as of yearend 20X3. Corporation B purchased equipment in order to facilitate the processing of its product (with the intent of expanding its revenue) over the next few years. At the end of this project (end of 20X7), a supplier will begin to take over the processing of this product. A few facts about the purchase are listed below: a. The cost of the equipment, including shipping and installation, is $400,000. The entire amount will be paid in cash. The equipment will be purchased in early 20X4. b. The life of the equipment is four years (end of 20X7), at which time it is expected to sell for $40,000. c. Corporation B will initially purchase $200,000 of inventory; 70% of inventory purchases over the life of this project will be financed via accounts payable. d. Recurring cash flows occur at year-end of each year, and termination cash flows occur at year-end 20X7. e. All cash flows generated each year are paid to Corporation B (i.e., owner of the project). Based on this information, Corporation B prepared the Projected Balance Sheet and Projected Income Statement for this project, which can be found in Appendix A. 2) Calculate the cash flows associated with this project. Calculate these cashflows by year, andfor 20X4, separately calculate the cash flows that occur at the beginning and end of the year. You will have five cash flow calculations: i. Beginning of 20X4 ii. End of 20X4 iii. End of 20X5 iv. End of 20X6 v. End of 20X7 (includes recurring cash flows and termination cash flows). 3) Compare the aggregate undiscounted cash flows to the aggregate net income flows. Explain the difference (if any). 4) Calculate the present value of the future cash flows.
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta