PLEASE DO THIS QUESTION IN THE ANSWER SHEET PROVIDED AND EMAIL IT TO THE PROFESSOR

WP Corp plans to take up a project that will cost $150,000 of investment in Building and $80,000 in new machinery. WP has already spent $8000 on research and analysis about the products that will be developed in this unit.

By taking up this project, WP estimates additional cash flows of $85000 per annum for the next five years.

COGS are expected to be 40% of the revenues, SG&A will be 4% of the revenues.

This project will require an additional inventory of $60,000 and an increase in payables by $25000

Tax Rate is 20%

The target Debt: Equity is 1:4

Cost of new debt: 6%

Cost of Equity: Need to calculate using the beta of 0.9, Rf of 4%, and market risk premium of 6%

The equipment that would be used has a 3-year tax life. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0.

The Salvage value of Building and Machinery after 5 years is $100,000.

1 What is the initial outlay?(Show the working as to what items are included) 2 Calculate Cost of Equity using CAPM: 3 Calculate WACC 4 Fill in the below income statement 2022 2023 2024 2025 2026 Revenue COGS Gross Profit SG&A/Other costs Depreciation EBIT Interest EBT Tax Net Profit 5 Calculate Operating Cash Flow for the 5 years 2022 2023 2024 2025 2026 EBIT (1-Tax) Add: Depreciation FCF 6 What is the Terminal Value (Show the working) 7 Calculate NPV

8 Calculate IRR (You can use calculator or the excel formula) 9 Calculate MIRR (You can use calculator or the excel formula) 10 What is conclusion- should the project be undertaken or not? Why?