Answer Questions 11-15 based on the following information about C Project A has

Question

Answer Questions 11-15 based on the following information about C Project A has a cost of $17.0M & delivery & installation costs of l.mne) 1o 1 SM. Weighted Average Cost of Capital 5. recast Capital Projects A&z.; (WACC)-15 %. The FCF growth rate (G) after the 5th year in the ( Terminal Value (TV)-(FCFs) (1+G)-(WACC-G) Expected Net After-Tax Free Cash Flows for Project A are shown Year Net Free Cash Flow (MS) to consider the delivery/installation costs) 5.5 8.7 11.9 15.1 12.0 4 (remember to consider the "terminal va lue")

Explanation / Answer

Year Cash flows rewritten Cumulative cash flows 0 -18.5 -18.5 -18.5 1 5.5 5.5 -13 2 8.7 8.7 -4.3 3 11.9 11.9 7.6 4 15.1 15.1 22.7 5 12 106.1538 128.8538 Terminal value 12*(1.02)/(0.15-0.02) 128.8538 94.1538 (12+94.1538=106.1538) Ordinary Payback= Last yr. with -ve cumulative Cash flow+(Absolute value of the last -ve cash flow/Total cash flow for the next yr.) ie. 2+(4.3/11.9)= 2.3613 ANSWER:   C. 2.36 Years

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