Expansion Project Financial modelling 3rd numerical assignment submission w

•ABC company wants to setup a new project. Following are the invest
•Building
–Investment = 50,000
–Depreciation Rate (SLM) - 5% SCRAP VALUE = 0
–Market Value of building after 5 years = 30,000 FOR BUILDING & EQUIPMEN
•Equipment
–Investment = 25,000
–Depreciation Rate (SLM) - 20%
–Market Value of equipment after 5 years = 7,000
•Working Capital
–Investment = 20,000
•Project Funding
Project is funded with a D/E = 2. Interest Rate is 15%. Debt is repaid in 5 Equal

•Life of Project is 5 years

•Annual Sales = 1,00,000, sales is expected to grow by 10% from year-2 onwar
•Variable Manufacturing costs = 50% of Total Sales
•Fixed Production overhead, excluding depreciation = 15,000
•Applicable tax rate = 40%
•Cost of capital = 15%

Find NPV & IRR

 ssignment submission weekday and weekend 25-3-2020

wing are the investment needed

RAP VALUE = 0
OR BUILDING & EQUIPMENT

Debt is repaid in 5 Equal Annual Installments at the end of each year

0% from year-2 onwards

 Year-0 Year-1 Year-2 Year-3 Year-4 Year-5

Investment Phase
Building 50,000
Equipment 25,000
Working Capital 20,000
Total investment 95,000
D/E 2
Debt 63,333
Equity 31,667

Debt Schedule
Beg Debt 63,333 53,940 43,138 30,715 16,429
Interest 9,500 8,091 6,471 4,607 2,464
EAI = PMT 18,893 18,893 18,893 18,893 18,893
End Debt 53,940 43,138 30,715 16,429 -
DEBT REPAID 9,393 10,802 12,423 14,286 16,429

Depreciation Schedule
Building
Depreciation 2,500 2,500 2,500 2,500 2,500
Net Book Value 50,000 47,500 45,000 42,500 40,000 37,500

Equipment
Depreciation 5,000 5,000 5,000 5,000 5,000
Net Book Value 25,000 20,000 15,000 10,000 5,000 -

Operations Phase
Sales 100,000 110,000 121,000 133,100 146,410
Variable Cost 50,000 55,000 60,500 66,550 73,205
Fixed Production overhead 15,000 15,000 15,000 15,000 15,000
Depreciation 7,500 7,500 7,500 7,500 7,500
Interest 9,500 8,091 6,471 4,607 2,464
PBT 18,000 24,409 31,529 39,443 48,241
Tax 7,200 9,764 12,612 15,777 19,296
PAT 10,800 14,645 18,918 23,666 28,944

Terminal Phase
Building Sale (7,500)
Tax Impact due to building sale (3,000)
Equipment Sale 7,000
Tax Impact due to equipment sale 2,800
Working Capital Reversal 20,000
Total Terminal Cash Flow 19,300

Calculation of FCFE
Total Investment (95,000)
Debt Raised 63,333
PAT 10,800 14,645 18,918 23,666 28,944
Depreciation 7,500 7,500 7,500 7,500 7,500
Debt Repaid (9,393) (10,802) (12,423) (14,286) (16,429)
Total Terminal Cash Flow 19,300
FCFE (31,667) 8,907 11,343 13,995 16,880 39,315

IRR 35.9%
NPV 23,055