Pls help with this report,

selectef project: 2, 3, 8

Case Study 2: Cash Flow Estimation & Capital Budgeting (30 points) Problem 1 - Capital Budgeting and Resource Allocation (15 points) Suppose you are the capital-budgeting analyst for a company considering investments in the eight projects listed in the table below (Excel Spreadsheet posted on Canvas). The chief financial officer of your company has asked you to rank the projects and recommend \"three best\" that the company should accept in preparation for a meeting with the capital budgeting committee of the company's Board of Directors. No other project characteristics are deciding factors in the selection, except that management has determined that projects 4 and 5 are mutually exclusive and that projects 7 and 8 are also mutually exclusive. All the projects require the same initial investment: $3 million. Moreover, all are believed to be of the same risk class and the appropriate discount rate to be used is 9%. Project free cash flows (in thousands of dollars) Project number 1 2 3 4 5 6 7 8 Initial Investment (3,000.00) (3,000.00) (3,000.00) (3,000.00) (3,000.00) (3,000.00) (3,000.00) (3,000.00) Year 1 495.00 2,499.00 240.00 500.00 3,300.00 1,800.00 (525.00) ; ' 2 495.00 501.00 300.00 500.00 1,350.00 (90.00) ee 3 = 495.00 247.50 525.00 500.00 450.00 90.00 4 495.00 592.50 500.00 135.00 525.00 5 495.00 648.00 500.00 105.00 1,050.00 6 495.00 660.00 500.00 100.00 1,800.00 7 495.00 663.00 500.00 100.00 3,375.00 8 1,500.00 666.00 500.00 500.00 500.00 9 669.00 500.00 10 672.00 500.00 11 675.00 500.00 12 676.50 500.00 13 676.50 14 678.00 15 15,000.00 (3,000.00) Tasks: 1. For each of the eight projects find their: a. Net Present Values b. Internal Rates of Return (or Modified Internal Rates of Return) c. Profitability Indexes d. Equivalent Annual Annuities 2. Based on your rankings, which of the three projects would you recommend? To be awarded any points you must explain to the CFO how you arrived at your choices. Problem 2 Estimating Project Cashflows and Making Capital Investment Decisions (15 points) After extensive research and development, Hankook Tires, Inc., has recently developed a new tire, the SuperTread, and must decide whether to make the investment necessary to produce and market it. The tire would be ideal for drivers doing a large amount of wet weather and off-road driving in addition to normal freeway usage. The research and development costs so far have totaled about $10 million. The SuperTread will be put on the market at the beginning of this year, and Hankook expects it to stay on the market for a total of four years. Test marketing costing $5 million has shown that there is a significant market for a SuperTread-type tire. As a financial analyst at Hankook Tires, you have been asked by your CFO, Paul Craig, to evaluate the SuperTread project and provide a recommendation on whether to go ahead with the investment. Except for the initial investment that will occur immediately, assume all cash flows will occur at year-end. Hankook must initially invest $160 million in production equipment to make the SuperTread. The equipment will be depreciated using the MACRS table and is classified as a 5-year MACRS property (use table given in class notes). This equipment can be sold for $65 million at the end of four years. The immediate initial working capital requirement is $9 million. Thereafter, the net working capital requirements will be 15 percent of sales every year. Hankook intends to sell the SuperTread to two distinct markets: 1. The original equipment manufacturer (OEM) market: The OEM market consists primarily of the large automobile companies (like General Motors) that buy tires for new cars. The following table has the projected sales and associated operating costs for the OEM market. OEM Market Year 1 Year 2 Year 3 Year 4 Revenues ($ millions) 111.848 | 119.5166 | 127.7109 | 136.4671 Operating Costs (S$ millions) | 79.112 | 84.53612 | 90.33212 | 96.52552 2. The replacement market: The replacement market consists of all tires purchased after the automobile has left the factory. This market allows higher margins. The following table has the projected sales and associated operating costs for the Replacement market. Replacement Market Year 4 Revenues (5S millions) 168.7749 | 179.4668 | 190.836 Operating Costs ($ millions) 78.9431 | 83.94415 | 89.26201 In addition, the SuperTread project will incur the following marketing and general administration costs: | Year 1 | Year 2 Year 3 Year 4 Marketing and Gen. Admin Costs (S Millions) | 43 | 44.3975 | 45.84042 | 47.33023 Hankook's corporate tax rate is 21 percent. The company uses a 17.5 percent discount rate to evaluate new product decisions. Questions: 1. What cashflows is this project expected to generate? This section will be graded as follows: e Prepare an \"investment section\" and in your analysis pay attention to how you treat: o Capital expenditure for the new production equipment. o Changes in NWC o The research and development costs o Test marketing costing e Prepare an income statement for the life of t File Preview astimate the net income for each year. e Finally, estimate the operating cash flows and total incremental after-tax cash flows of the project. Calculate the profitability index (Pl), net present value (NPV), and internal rate of return (IRR) for the project. Should Hankook Tires undertake this project, why? How high does the discount rate on this project have to be for the project to start having a negative NPV