Figure 1

COGS Assumption SG&A Assumptions Taxes NWC Assumption

0.75 0.75 0.4 0.1

Figure 2
Risk free rate 2.82%
Risk premium 6%
Levered beta 1.1

Market capitalization 12000

Debt balance 3000
 Capital Expenditure
Lifetime of Investment (years) Recovery Assumption Discount Rate
6 1.8 8%
EX 1 YEARS
2007 2008 2009 2010
Investment capital outlay 16000 2000 0 0
Net working capital (10% sales) 0 400 600 0
Total investment 16000 2400 600 0
Investment recovery
Equipment salvage (10% total *(1-0.4tax) 18000
Net working capital (full recovery)

2007 2008 2009 2010

Sales revenue 4000 10000 10000
COGS (75% sales) 3000 7500 7500
SG&A (5% sales) 200 500 500
Operating savings 2000 3500 3500
Depreciation (18000/6) 3000 3000 3000
Total cost and expenses

EBIT 0 -200 2500 2500

Taxes 0 -80 1000 1000
NOPAT 0 -120 1500 1500

Depreciation 3000 3000 3000

Investment -16000 -2400 -600 0
Free cash flow -16000 600 3900 4500
 2011 2012 2013
0 0 0
0 0 0
0 0 0

1080
1000

2011 2012 2013

10000 10000 10000
7500 7500 7500
500 500 500
3500 3500 3500
3000 3000 3000

2500 2500 2500

1000 1000 1000
1500 1500 1500

3000 3000 3000

0 0 2080
4500 4500 6580
WACC Calculation
We know

Bank loan payable 500 Total debt 3000 %Debt 0.2

Long term debt 2500 Cost of debt 5.80%
Shares outstanding 500
Current market price 24

Beta 1.10% Cost of equity 0.112 % Equity 0.8

Market premium 6% Equity 12000
Risk free rate 4.60%
Tax rate 40%

WACC = Cost of debt *%debt*(1-Tax) + Cost of Equity *% Equity = 5.8%*20%*(1-0.4) + 0.112*0.8 = 9.656%