Show me the steps to solve Payback Analysis and Discounted Payback Analysis

Sunrise Bakery

Assumptions

Expected Investment Cost $$300,000$

Risk Free Rate $0\%$

Market Beta $0\mathrm{.}70$

Equity Risk Premium $5\mathrm{.}50\%$

Cost of Debt $0\%$

Cost of Equity $3\mathrm{.}85\%$

Tax rate $30\%$

WACC $3\mathrm{.}85\%$

Income statement $($all figures are incremental$)0123456$

Revenue $($Sales$)$ $$135,000$ $$145,000$ $$155,000$ $$165,000$ $$165,000$ $$165,000$

Production Costs $($$$20,000)($$$22,000)($$$24,000)($$$26,000)($$$26,000)($$$26,000)$

Depreciation $/$ Amortization $($$$30,000)($$$30,000)($$$30,000)($$$30,000)($$$30,000)($$$30,000)$

Profit Before tax $$85,000$ $$93,000$ $$101,000$ $$109,000$ $$109,000$ $$109,000$

Taxes $($$$25,500)($$$27,900)($$$30,300)($$$32,700)($$$32,700)($$$32,700)$

Profit after tax $($Net Income$)$ $$59,500$ $$65,100$ $$70,700$ $$76,300$ $$76,300$ $$76,300$

Projected Balance Sheet $0123456$

Cash and Marketable Sec. $$0$ $$90,175$ $$185,325$ $$286,075$ $$392,425$ $$498,725$ $$605,025$

Other Current Assets $($Inventory and Receivables$)$ $$15,000$ $$17,025$ $$17,175$ $$17,325$ $$17,475$ $$17,475$ $$17,475$

Fixed Assets

At cost $$300,000$ $$300,000$ $$300,000$ $$300,000$ $$300,000$ $$300,000$ $$300,000$

Accumulated Depreciation $/$ Amortization $$0$ $$30,000$ $$60,000$ $$90,000$ $$120,000$ $$150,000$ $$180,000$

Net Fixed Assets $$300,000$ $$270,000$ $$240,000$ $$210,000$ $$180,000$ $$150,000$ $$120,000$

Total Assets $$315,000$ $$377,200$ $$442,500$ $$513,400$ $$589,900$ $$666,200$ $$742,500$

Current Liabilities $($Payables$)$ $$0$ $$2,700$ $$2,900$ $$3,100$ $$3,300$ $$3,300$ $$3,300$

LT Debt $$0$ $$0$ $$0$ $$0$ $$0$ $$0$ $$0$

Total Liabilities $$0$ $$2,700$ $$2,900$ $$3,100$ $$3,300$ $$3,300$ $$3,300$

Stock and accumulated retained earnings $$315,000$ $$374,500$ $$439,600$ $$510,300$ $$586,600$ $$662,900$ $$739,200$

Total Liabilities and Equity $$315,000$ $$377,200$ $$442,500$ $$513,400$ $$589,900$ $$666,200$ $$742,500$

Working Capital $($Non$-$Cash Current Assets less Current Liabilities$)$ $$15,000$ $$14,325$ $$14,275$ $$14,225$ $$14,175$ $$14,175$ $$14,175$

Change in working capital $$0-$$$675-$$$50-$$$50-$$$50$ $$0$ $$0$

Projected Free Cash Flows to the Project

Net Income $$0$ $$59,500$ $$65,100$ $$70,700$ $$76,300$ $$76,300$ $$76,300$

Depreciation $/$ Amortization $$0-$$$30,000-$$$30,000-$$$30,000-$$$30,000-$$$30,000-$$$30,000$

Change in working capital $$0-$$$675-$$$50-$$$50-$$$50$ $$0$ $$0$

Capital Expenditures $($fixed assets at cost$)-$$$300,000-$$$300,000-$$$300,000-$$$300,000-$$$300,000-$$$300,000-$$$300,000$

After tax salvage value $($Terminal Value$)$ $$0$ $$0$ $$0$ $$0$ $$0$ $$0$ $$84,000$

Free Cash Flows $-$$$300,000-$$$271,175-$$$264,950-$$$259,350-$$$253,750-$$$253,700-$$$169,700$

NPV $-$$$975,750$

Should the company undertake the project?

Number of years

Payback Analysis $($when do cash flows sum positive?$)$

Discounted Payback Analysis