Tax rate 28%

Debt
Bonds 150000
Coupon rate 7%
Maturity 15
Par 100
Price 92%
Equity
Shares 300000
Price 75
beta 1.3
Preference shares
Shares 20000
Face value 100
Dividend 5%
Price 72
Market
Risk premium 8%
Ris-free rate 5%

a)
Land (opportunity cost) -6,500,000
Plant -15,000,000
Working capital -900,000
-22,400,000

b)
MV Debt 13,800,000
MV Equity 22,500,000
MV Pref. Shares 1,440,000
37,740,000

RD semi-annual 3.96%
-3.50936E-11

Cost Weight
Debt 5.70% 36.6% 2.09%
Equity 15.40% 59.6% 9.18%
Pref. Shares 6.94% 3.8% 0.26%
WACC 11.53%

Project required return 13.53%

c)

Year 1 2 3 4
(a) Starting Value 15,000,000 12,000,000 9,600,000 7,680,000
(b) Depreciation 20% 3,000,000 2,400,000 1,920,000 1,536,000
(c) Accumulated Depreciation 3,000,000 5,400,000 7,320,000 8,856,000
(d) Residual Value 12,000,000 9,600,000 7,680,000 6,144,000

Salvage value 5,000,000

Tax -23,744
After-tax salvage value 4,976,256

d)

1 2 3 4
Sales 12,000 12,000 12,000 12,000

Revenues 120,000,000 120,000,000 120,000,000 120,000,000

Variable Costs 108,000,000 108,000,000 108,000,000 108,000,000
Fixed Costs 400,000 400,000 400,000 400,000
Depreciation 20% 3,000,000 2,400,000 1,920,000 1,536,000
EBT 8,600,000 9,200,000 9,680,000 10,064,000
Tax 2,408,000 2,576,000 2,710,400 2,817,920
Net Income 6,192,000 6,624,000 6,969,600 7,246,080
Operating Cash Flow 9,192,000 9,024,000 8,889,600 8,782,080

e)
1 2 3 4
Sales 2,400 2,400 2,400 2,400

Revenues 24,000,000 24,000,000 24,000,000 24,000,000

Variable Costs 21,600,000 21,600,000 21,600,000 21,600,000
Fixed Costs 400,000 400,000 400,000 400,000
Depreciation 20% 3,000,000 2,400,000 1,920,000 1,536,000
EBT -1,000,000 -400,000 80,000 464,000
Tax -280,000 -112,000 22,400 129,920
Net Income -720,000 -288,000 57,600 334,080

f)

0 1 2 3
Operating Cash Flow 9,192,000 9,024,000 8,889,600
Net Working Capital -900,000
Land -6,500,000
Investment -15,000,000
Net Cash Flow -22,400,000 9,192,000 9,024,000 8,889,600
PV Cash Flows -22,400,000 8,096,426 7,001,092 6,074,804
NPV 14,169,977
IRR 34.71%
 5
6,144,000
1,144,000
10,000,000
5,000,000

5
12,000

120,000,000
108,000,000
400,000
1,144,000
10,456,000
2,927,680
7,528,320
8,672,320 -23,744

5
2,400

24,000,000
21,600,000
400,000
1,144,000
856,000
239,680
616,320 0

4 5
8,782,080 8,672,320 -23,744
900,000 0
4,500,000 0
5,000,000 23,744
8,782,080 19,072,320 0
5,286,044 10,111,610
 Tax rate 28%

Debt
Bonds 150000
Coupon rate 7%
Maturity 15
Par 100
Price 92%
Equity
Shares 300000
Price 75
beta 1.3
Preference shares
Shares 20000
Face value 100
Dividend 5%
Price 72
Market
Risk premium 8%
Risk-free rate 5%

a)
Land (opportunity cost) -6,500,000
Plant -15,000,000
Working capital -900,000
-22,400,000

b)
MV Debt 13,800,000
MV Equity 22,500,000
MV Pref. Shares 1,440,000
37,740,000

RD semi-annual 3.96%
0.00000

Cost Weight
Debt 5.70% 36.6% 2.09%
Equity 15.40% 59.6% 9.18%
Pref. Shares 6.94% 3.8% 0.26%
WACC 11.53%

Project required return 13.53%

c)

Year 1 2 3 4
(a) Starting Value 15,000,000 12,000,000 9,600,000 7,680,000
(b) Depreciation 20% 3,000,000 2,400,000 1,920,000 1,536,000
(c) Accumulated Depreciation 3,000,000 5,400,000 7,320,000 8,856,000
(d) Residual Value 12,000,000 9,600,000 7,680,000 6,144,000

Salvage value 5,000,000

Tax -23,744
After-tax salvage value 4,976,256

d)

1 2 3 4
Sales 12,000 12,000 12,000 12,000

Revenues 120,000,000 120,000,000 120,000,000 120,000,000

Variable Costs 108,000,000 108,000,000 108,000,000 108,000,000
Fixed Costs 400,000 400,000 400,000 400,000
Depreciation 20% 3,000,000 2,400,000 1,920,000 1,536,000
EBT 8,600,000 9,200,000 9,680,000 10,064,000
Tax 2,408,000 2,576,000 2,710,400 2,817,920
Net Income 6,192,000 6,624,000 6,969,600 7,246,080
Operating Cash Flow 9,192,000 9,024,000 8,889,600 8,782,080

e)
1 2 3 4
Sales 2,417 2,417 2,417 2,417

Revenues 24,169,600 24,169,600 24,169,600 24,169,600

Variable Costs 21,752,640 21,752,640 21,752,640 21,752,640
Fixed Costs 400,000 400,000 400,000 400,000
Depreciation 20% 3,000,000 2,400,000 1,920,000 1,536,000
EBT -983,040 -383,040 96,960 480,960
Tax -275,251 -107,251 27,149 134,669
Net Income -707,789 -275,789 69,811 346,291

f)

0 1 2 3
Operating Cash Flow 9,192,000 9,024,000 8,889,600
Net Working Capital -900,000
Land -6,500,000
Investment -15,000,000
Net Cash Flow -22,400,000 9,192,000 9,024,000 8,889,600
PV Cash Flows -22,400,000 8,096,426 7,001,092 6,074,804
NPV 14,169,977
IRR 34.71%
 5
6,144,000
1,228,800
10,084,800
4,915,200

5
12,000

120,000,000
108,000,000
400,000
1,228,800
10,371,200
2,903,936
7,467,264
8,696,064

5
2,417

24,169,600
21,752,640
400,000
1,228,800
788,160
220,685
567,475 0

4 5
8,782,080 8,696,064
900,000
4,500,000
4,976,256
8,782,080 19,072,320
5,286,044 10,111,610