WACC CF1 CF2 CF3 CF4 CF5 Initial Outlay ($65,000,000) Cash Flows (Sales) $50,000,000 $25,500,000 $65,500,000 $45,000,000 $55,000,000 $25,000,000 $25,500,000 $25,500,000 $25,500.000 $25,500,000 Operating Costs (excluding Depreciation) (13,000,000) (13,500,000) (3,375,000) (10,125,000) Depreciation Rate of 20% Operating Income (EBIT) Income Tax (Rate 25%) After-Tax EBIT (13,000,000) 27,000,000 6,750,000 20,250,000 (13,000.000) (13,000,000) (13,000,000) 16,500.000 11,500,000 6.500,000 4,125,000 12,375,000 2,875,000 8,625,000 1,625,000 4,875,000 + Depreciation Cash Flows 13,000,000 13,000,000 13,000,000 13,000,000 13,000,000 17,875,000 ($65,000,000) 25,375,000 2,875,000 21,625,000 33.250,000 Select from drop down below: $15,404,422.60 ACCEPT NPV IRR 19% ACCEPT
WACC CF1 CF2 CF3 CF4 CF5 Initial Outlay ($65,000,000) Cash Flows (Sales) $50,000,000 $25,500,000 $65,500,000 $45,000,000 $55,000,000 $25,000,000 $25,500,000 $25,500,000 $25,500.000 $25,500,000 Operating Costs (excluding Depreciation) (13,000,000) (13,500,000) (3,375,000) (10,125,000) Depreciation Rate of 20% Operating Income (EBIT) Income Tax (Rate 25%) After-Tax EBIT (13,000,000) 27,000,000 6,750,000 20,250,000 (13,000.000) (13,000,000) (13,000,000) 16,500.000 11,500,000 6.500,000 4,125,000 12,375,000 2,875,000 8,625,000 1,625,000 4,875,000 + Depreciation Cash Flows 13,000,000 13,000,000 13,000,000 13,000,000 13,000,000 17,875,000 ($65,000,000) 25,375,000 2,875,000 21,625,000 33.250,000 Select from drop down below: $15,404,422.60 ACCEPT NPV IRR 19% ACCEPT
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
What are the implications of these calculations? In other words, based on each of the calculations, and being mindful of the need to balance portfolio risk with return, would you recommend that the company pursue the investment? Why or why not? Be sure to substantiate claims.
Transcribed Image Text:WACC
CF1
CF2
CF3
CF4
CF5
Initial Outlay
($65,000,000)
Cash Flows (Sales)
$50,000,000
$25,500,000
$65,500,000
$45,000,000
$55,000,000
$25,000,000
$25,500,000
$25,500,000
$25,500.000
$25,500,000
Operating Costs (excluding Depreciation)
(13,000,000)
(13,500,000)
(3,375,000)
(10,125,000)
Depreciation Rate of 20%
Operating Income (EBIT)
Income Tax (Rate 25%)
After-Tax EBIT
(13,000,000)
27,000,000
6,750,000
20,250,000
(13,000.000)
(13,000,000)
(13,000,000)
16,500.000
11,500,000
6.500,000
4,125,000
12,375,000
2,875,000
8,625,000
1,625,000
4,875,000
+ Depreciation
Cash Flows
13,000,000
13,000,000
13,000,000
13,000,000
13,000,000
17,875,000
($65,000,000)
25,375,000
2,875,000
21,625,000
33.250,000
Select from drop
down below:
$15,404,422.60 ACCEPT
NPV
IRR
19% ACCEPT
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