You are expected Sales to increase next year by 10% off of a base of $7,000...

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You are expected Sales to increase next year by 10% off of a base of $7,000 this year. Net Income this past year was $600. Assets were 11,000 this year, and the Sales/Assets ratio will remain constant next year. Debt this past year was at 3,500, and the Debt/Equity ratio will remain constant for the next year. No debt will be retired and no stock will be retired. No Dividends will be given out. The firm expects the following 3 years of cash flow from a project to look like this: YEAR 1: YEAR 2: DISCOUNTED CASH FLOW YEAR 3: 100 125 140 The project will last 5 years in total and then it will be sold for 200% x Revenues for that year. All cash flows will occur at the End of Each Year. The discount rate for the project is given by the Cost of Equity calculated by using the Capital Asset Pricing Model (CAPM). Beta is 1.5. The risk-free rate is 5%. The equity risk premium is said to be 8%. This CAPM derived cost of equity capital will be used for all years. 11. If growth in year 4 is 10%, what is the Year 4 cash flow? 12. If growth in year 5 is 5%, what is the Year 5 cash flow? 13. What is the equity cost of capital, derived from the Capital Asset Pricing Model (CAPM)? Using the cost of equity from the CAPM, please calculate the Present Value of each individual cash flow: 14. PV Year 1 CF 15. PV Year 2 CF 16. PV Year 3 CF 17. PV Year 4 CF 18. PV Year 5 CF 19. The project is SOLD at the end of Year 5, for two-times Year 5 CF. What is the PV of the proceeds from the sale of the project? 20. What is the SUM of the PVs from all six cash flows? (PVs from Years 1 through 5 plus PV of the proceeds from the sale) You are expected Sales to increase next year by 10% off of a base of $7,000 this year. Net Income this past year was $600. Assets were 11,000 this year, and the Sales/Assets ratio will remain constant next year. Debt this past year was at 3,500, and the Debt/Equity ratio will remain constant for the next year. No debt will be retired and no stock will be retired. No Dividends will be given out. The firm expects the following 3 years of cash flow from a project to look like this: YEAR 1: YEAR 2: DISCOUNTED CASH FLOW YEAR 3: 100 125 140 The project will last 5 years in total and then it will be sold for 200% x Revenues for that year. All cash flows will occur at the End of Each Year. The discount rate for the project is given by the Cost of Equity calculated by using the Capital Asset Pricing Model (CAPM). Beta is 1.5. The risk-free rate is 5%. The equity risk premium is said to be 8%. This CAPM derived cost of equity capital will be used for all years. 11. If growth in year 4 is 10%, what is the Year 4 cash flow? 12. If growth in year 5 is 5%, what is the Year 5 cash flow? 13. What is the equity cost of capital, derived from the Capital Asset Pricing Model (CAPM)? Using the cost of equity from the CAPM, please calculate the Present Value of each individual cash flow: 14. PV Year 1 CF 15. PV Year 2 CF 16. PV Year 3 CF 17. PV Year 4 CF 18. PV Year 5 CF 19. The project is SOLD at the end of Year 5, for two-times Year 5 CF. What is the PV of the proceeds from the sale of the project? 20. What is the SUM of the PVs from all six cash flows? (PVs from Years 1 through 5 plus PV of the proceeds from the sale)

Answer rating: 100% (QA)

11If growth in year 4 is 10 what is the Year 4 cash flow Year 3 cash flow 140 Growth in Year 4 10 Year 4 cash flow Year 3 cash flow Year 3 cash flow Growth in Year 4 Year 4 cash flow 140 140 010 Year ... View the full answer