Determine cash flow of this investment project where: - initial costs of investm

Question

Determine cash flow of this investment project where: - initial costs of investment property is 50 million -depreciation period is 3 years, 1st year is 20 %, other years 40 % - working capital increase sby 15 mil. USD in the beginning of investment -annual sales in the first year are expected to be 200,000 pieces, in the following years annual growth will be 10%. Price is set on 70 USD - annual fixed costs is 10 mil USD tax rate is 20 %, liftime of investment is 5 years. calculate the cash flow of this investment using net cash income, average annual return, payback method b) Calculate WACC of the company if you know: ratio debt/capital is 3/4, debt has a interest rate of 7 %; return on investment is 14%. c calculate EVA for the first 3 years

Explanation / Answer

Answer:

Table of solutions:

b) WACC:

calculation of WACC=Kd* proportion of the cost of debt in total capital+ ke* proportion of equity

=cost of debt ( 1- tax rate)* D/ V+ cost of return on equity* proportion of equity

=7%*(1-0.20)*0.75+14%*0.25

=8%

( in $) 0 1 2 3 4 5 Intial cost of property 50 million Dep 20% 40% 40% working capital 15 million Annual sales 200000 220000 242000 266200 292820 Price in USD 70 70 70 70 70 Annual fixed cost 10 million 10 million 10 million 10 million 10 million Tax rate 20%

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