of Return (IRR) from this project is around 15.66%. Given the projected cash flow information…
Investment in fixed assets of $35,000.The assets will have a salvage value of $5,000 at the end of the 5 year project. The asset will be depreciated, straight line, over that period. The impact of the project will be an increase in revenue of $30,000 and cost of $17,000 each year. The working capital of the company will need to be higher than normal by $1,000 each year of the project. The tax rate is 34 %. What is the operating cash flow? What is the project’s net present value at a 20% discount rate?…
When it comes to investing in the 7E7 project the investors have three major options. The first of these options is to invest in the project with a short term gain in mind. Secondly the shareholder can invest expecting the project to pay off in the long-term. And lastly the prospective shareholder can choose to not invest in the project as a whole. In order to evaluate the profitability of the 7E7 project we are going to calculate the WACC of the project and then compare it to the stated IRR of 15.7%. While this calculation of IRR is subject to other risks such as the amount of units sold expected, we are going to assume 2,500 units will be sold annually over the first 20 years. It is also assumed that over the next 20 years world economies will grow by 3.2% annually and the relationship between air travel and GDP will continue which is growing at 5.1% annually. The calculation of the WACC is determined by using the following equation.…
In FVC’s WACC calculations, we assumed that the corporate projects run by the company are long term in…
Based on our calculation, the current WACC is 11.47% as of August 01, 2002. In this calculation, for the borrowing rate, we use 5.70% regarding Deluxe’s bond rate A from Exhibit 8. The marginal tax rate is is projected to be 38%. We use 5.41% for the risk free rate of return with respect to the 20 years U.S Treasury bond. The equity risk premium and beta are given at 6% and .85, respectively. Since the beginning of 2002, Deluxe had retired all of its long term debt, we calculate the total debt by adding the short-term debt and the long-term debt due within one year to arrive at $151 million; for the total equity, we multiply the number of shares outstanding which is given in the company’s 2001 Financial Summary, by the market adjusted close price per share which we look up in yahoo finance to get to $1,568 million. For the small stock risk premium, we use 1.73% as Deluxe’s total equity is between…
The WACC calculation is a company’s cost of capital in which each category of capital is equally weighted. A firm should use WACC as the discount rate when calculating the Net Present Value (NPV) of any typical project. All capital sources such as common stock, preferred stock, bonds and all other long-term debt are included in this calculation. As the WACC of a firm increases, the beta and rate of return on equity increases, which is an indicator of a decrease in valuation and a higher risk. By taking the weighted average, we can see how much interest the company has to pay for every dollar it finances. For this calculation, we use the following formula: WACC = rD (1- Tc ) * (D/V) + rE * (E/V) = 11.09%…
To adjust beta in accordance with project we assume that in the long-run Dixon will maintain its target debt-to-capital ratio in proportion of 35%. Thus, we get the following beta asset of the project that accounts for Dixon’s capital structure:…
Through our analysis we found that the cost of capital of the project to be 13.487% and a Weighted Average Cost of Capital (WACC) to be at a value of 9.70%. Factoring in the WACC into our projections we found that if the demand maintains at an average rate the project will be at a positive Net Present Value of $5,997,505.31 with an IRR of 13.21%, a profitability index of 8.84, and an approximate payback period of 6.84 years. Please see Exhibits below for a snapshot of the capital budget and NPV values.…
As can be seen in the Appendix C the large project, while taking into account a rwacc of 9% and the expectation that there will be high demand and high growth opportunities for the firm’s products; the Net Present Value of the firm will be $17,140,000.00. An Internal Rate of Return will be realized of 25.83%. Furthermore the MIRR is calculated as 21.54% and the payback period of the project is 7.05 years. Taking all other factors the same, when the firm is building a small facility, the NPV would be $11,723,000.00, the IRR 23.39%, the MIRR 18.05% and the period in which the costs will be paid back 7.18 years.…
Excel Sheet Projections for Expansion Project Investment Appraisal for Expansion Project 2009-2018 Free Cash Flows, NPV, IRR, MIRR Calculation of Cost of Capital Riskfree Rate, Market Risk Premium, EquityBeta, Cost of Equity, Cost of Debt, WACC Sensitivity Analysis of Key Projections Decrease of 10% Current Increase of 10%…
We begin by describing the logic of the WACC, and why it should be used in capital budgeting. We next explain how to estimate the cost of each component of capital,…
We know that Beta of Boeing Corp. is the weighted average of the defense division Beta and the commercial division Beta.…
The Venture Capital Division of Boeing has four projects on the table with three additional leverages of debt. As the financial analyst for the division I was given the task of evaluating the four capital budgeting projects. After evaluating each project I will recommend which project will bring the most value to shareholders and the firm.…
The Boeing 787 Dreamliner has been in the news recently for having issues with their lithium-ion batteries. As a result of this the company has been experiencing a line of issues with delay of delivery, business loss, and redesign costs within the last four years.…
2. First step of calculating cost of capital for 777 project is calculating Boeing’s levered beta. To calculate Boeing’s levered beta, we have to calculate unlevered betas of Grumman, Northrop, Lockheed and Lockheed then we have to take average of these betas. (0.369) Boeing’s levered beta is calculated as 0.373. Then we calculate Boeing’s commercial division beta which is 0.964. Then we calculate cost of equity (14.3%) and cost of debt (9.67%). Then finally the cost of capital for this project is calculated using the formula: rWACC= (E/V)*requity+ (D/V)*rdebt*(1-T) which is 14.16%. (Detailed calculations are disclosed in Appendix)…