These questions are designed to develop students' ability to make strategic decision. Students will have opportunities to integrate knowledge about corporate-level strategy with analytical skills learned from finance classes. 1-3. Free Cash Flow; WACC; NPV (3 questions) Revenue EBIT + After Tax Capital Expenditure Dep. & Amortization Net Working Capital Change Free Cash Flow 2014 Cost of Equity = 10% Corporate Tax Rate = 35% 142343 4522 1577 437 3382 2015 152235 4225 1823 575 -4808 7785 2016 106364 2214 1088 622 6090 -4342 Other information Your Investment in Acquisition = $2,000 in 2018 Capital Structure = $1,200 from Bank; $800 from Investors Interest Rate = 5% 2017 144978 3214 1657 1026 1539 1044 2018 2019 1 M&A 186152 205309 3621 4314 2606 2395 1066 1045 903 1178 1689 2020 2 213635 5835 3123 1087 1758 1. Free Cash Flow = EBIT+After Tax+Amortisation/Depreciation-Capital Expenditure- Net Change in Working Capital So 2019, Free Cash Flow = 1275 2. Free Cash Flow for 2020 = 2041 3. WACC = 5.95% as detailed under WACC = Ke+Kd*(1-t)W ACC = Weighted Average Costof Capital Ke = Costo f Equity Kd = Costof Debtt = Tax Rate SoW ACC = (800*.10+1200* .05*(1.35))/2000 = .0595 NPV = FreeCash Flow 2018/(1+WACC) + FreeCash Flow 2019/(1+ WACC) + FreeCash flow 2020/(1+WACC) 4. So NPV = 3963.75 The deal will be accepted becase NPV is higher than the Investment required this is all the necessary info you need to answer these remaining questions.. Restart your subscription to keep accessing solutions. Your Chegg Study subscription will expire on April 10, 2018. CONTINUE MY SUBSCRIPTION home / study/business/finance / finance questions and answers / 5) assume the investment project in the previous question will generate $1,000 and $1,000 in... Your question needs more information to be answered. A Chegg Expert needs more info to provide you with the best answer. See comments below. Question: 5) Assume the investment project in the previous question will generate $1,000 and $1,000 in free... 5) Assume the investment project in the previous question will generate $1,000 and $1,000 in free cash flows for two years (2019/ 1st yr) and (2020/ 2nd year), respectivly. The forecasted annual inflation is 2% a year. Show the actual or (real) free cash flow(after inflation rate is considered) in 2019(1st year) and 2020(second year) If WACC is 10%, what is the presnt value of the investment (investment year is 2018) Show your work. 6) Actual Free cash flow in 2020 7) Calculate PV at 10% of WACC 8) You plan to purchase a pizza store for $100,000. The investment will generate $112,000 in cash flow for the first year. What is the IRR on this investment? Show your work. 9) If you borrowed $50,000 from a bank at 5% of interest rate and raised $50,000 from investors at 10% of cost of equity, are you going to accept this project? Why?