• The firm is looking to expand its operations by 10% of the firm's net property, plant, and equipment.
• The estimated life of this new property, plant, and equipment will be 12 years. The salvage value of the equipment will be 5% of the property, plant and equipment's cost.
• The annual EBIT for this new project will be 18% of the project's cost.
• The company will use the straight-line method to depreciate this equipment. there will be no increases in net working capital each year. Use 35% as the tax rate in this project.
• The hurdle rate for this project will be the WACC

calculations for the amount of property, plant, and equipment and the annual depreciation for the project

• calculations that convert the project's EBIT to free cash flow for the 12 years of the project.
• The following capital budgeting results for the project
• Net present value
• Internal rate of return
• Discounted payback period.
• acceptance or rejection of the project

Income Statement

For the Year Ended December 31, 2009

Sales (all on credit) ..................................................................... $ 4,000,000

Cost of Goods Sold...........................................................................3,000,000

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Gross Profit.....................................................................................$ 1,000,000

Selling and Administrative Expenses...........................................450,000

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Operating Profit ..............................................................................$550,000

Interest Expense..............................................................................50,000

Extraordinary Loss............................................................................200,000

Earnings Before Taxes.....................................................................$300,000

Income Taxes (33%).........................................................................100,000

Net Income........................................................................................$200,000

Balance Sheet

As of December 31, 2009

Assets

Cash....................................................................................... $30,000

Accounts Receivable...........................................................350,000

Marketable Securities ........................................................50,000

Inventory...............................................................................370,000

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Total Current Assets............................................................. $800,000

Net Plant and Equipment.....................................................800,000

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Total Assets............................................................................$ 1,600,000

Liabilities and Stockholders' Equity

Accounts Payable....................................................................$50,000

Notes Payable..........................................................................250,000

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Total Current Liabilities...........................................................$ 300,000

Long Term Liabilities.................................................................. 300,000

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Total Liabilities ..........................................................................$ 600,000

Common Stock............................................................................ 400,000

Retained Earnings.......................................................................600,000

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Total Stockholders' Equity.......................................................$ 1,000,000

____________

Total Liabilities and Stockholders' Equity.............................. $ 1,600,000