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WPC Assignment - FM Case

The document presents cash flow statements for a company from 2016-2018 and projected cash flows from 2019-2022. It also includes the company's balance sheet, calculation of weighted average cost of capital (WACC) of 7.39%, and net present value (NPV) calculations using discount rates of 10%, 3%, and 0% to analyze the potential project.

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Ahmed Ali
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68 views6 pages

WPC Assignment - FM Case

The document presents cash flow statements for a company from 2016-2018 and projected cash flows from 2019-2022. It also includes the company's balance sheet, calculation of weighted average cost of capital (WACC) of 7.39%, and net present value (NPV) calculations using discount rates of 10%, 3%, and 0% to analyze the potential project.

Uploaded by

Ahmed Ali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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WPC Case Assignment

Cash Flow Statements


2016 2017 2018
Initial Cashflow
Capital Investment $16,000,000.0 $2,000,000.0 $0.0
Installation Cost $0.0 $0.0 $0.0
Change in Working Capital $0.0 $400,000.0 $1,000,000.0
Net Initial Cashflow $16,000,000.0 $2,400,000.0 $1,000,000.0

Operating Cashflow
Revenues $0.0 $4,000,000.0 $10,000,000.0
CGS $0.0 $3,000,000.0 $7,500,000.0
Gross Profit $0.0 $1,000,000.0 $2,500,000.0
Depreciation $0.0 $3,000,000.0 $3,000,000.0
SG&A $0.0 $200,000.0 $500,000.0
EBIT $0.0 -$2,200,000.0 -$1,000,000.0
Cost Savings $0.0 $2,000,000.0 $3,500,000.0
EBIT $0.0 -$200,000.0 $2,500,000.0
Tax $0.0 $80,000.0 -$1,000,000.0
EAT $0.0 -$120,000.0 $1,500,000.0
Add Depreciation $0.0 $3,000,000.0 $3,000,000.0
Net Operating Cashflows $0.0 $2,880,000.0 $4,500,000.0

Terminal Cashflow
Cost of Old Project $0.0 $0.0 $0.0
Book Value $0.0 $0.0 $0.0
Profit(Loss) $0.0 $0.0 $0.0
Sales Tax $0.0 $0.0 $0.0
Taxed Profit(Loss) $0.0 $0.0 $0.0
Net Terminal Cashflow $0.0 $0.0 $0.0

Weighted Average Cost of Capital

Company's Balance Sheet

Bank Loans Payable $500,000,000.00


Long-Term Debt $2,500,000,000.00
Common Stock $12,000,000,000.00
Retained Earnings $200,000,000.00

Total Debt & Equity $15,200,000,000.00

Calculation for Debt

Cost of Debt
3.85%
Weight of Debt
19.74%

Calculation for Equity Cost

Beta B 1.10
Market Risk Premium Rm 6.00%
Risk Free Rates Rf 2.04%
Rf+[B*(Rm - Rf)]
8.6%
Weight of Equity
80.26%

WACC
[(Cost of Capital)x(Weight of Capital)]+[{(Cost of Debt)x(Weight of Debt)}x(1-Tax Rate)]

7.39%

Net Present Value of the Project Interest (Hurdle Rate) 10.00%

Years n. Periods Investment


2016 -1 $16,000,000.00
2017 (Base Year) 0 $2,400,000.00
2018 1 $1,000,000.00
2019 2 $1,000,000.00
2020 3 $1,000,000.00
2021 4 $1,000,000.00
2022 5 $1,000,000.00

$23,400,000.00
NPV =

Internal Rate of Return of the Project Interest (Hurdle Rate) 10.00%

Years n. Periods Investment


2016 -1 $16,000,000.00
2017 (Base Year) 0 $2,400,000.00
2018 1 $1,000,000.00
2019 2 $1,000,000.00
2020 3 $1,000,000.00
2021 4 $1,000,000.00
2022 5 $1,000,000.00

$23,400,000.00

HNPV =

Interest (Hurdle Rate) 3.00%

Years n. Periods Investment


2016 -1 $16,000,000.00
2017 (Base Year) 0 $2,400,000.00
2018 1 $1,000,000.00
2019 2 $1,000,000.00
2020 3 $1,000,000.00
2021 4 $1,000,000.00
2022 5 $1,000,000.00

$23,400,000.00

LNPV =
2019 2020 2021 2022

$0.0 $0.0 $0.0 $0.0


$0.0 $0.0 $0.0 $0.0
$1,000,000.0 $1,000,000.0 $1,000,000.0 $1,000,000.0
$1,000,000.0 $1,000,000.0 $1,000,000.0 $1,000,000.0

$10,000,000.0 $10,000,000.0 $10,000,000.0 $10,000,000.0


$7,500,000.0 $7,500,000.0 $7,500,000.0 $7,500,000.0
$2,500,000.0 $2,500,000.0 $2,500,000.0 $2,500,000.0
$3,000,000.0 $3,000,000.0 $3,000,000.0 $3,000,000.0
$500,000.0 $500,000.0 $500,000.0 $500,000.0
-$1,000,000.0 -$1,000,000.0 -$1,000,000.0 -$1,000,000.0
$3,500,000.0 $3,500,000.0 $3,500,000.0 $3,500,000.0
$2,500,000.0 $2,500,000.0 $2,500,000.0 $2,500,000.0
-$1,000,000.0 -$1,000,000.0 -$1,000,000.0 -$1,000,000.0
$1,500,000.0 $1,500,000.0 $1,500,000.0 $1,500,000.0
$3,000,000.0 $3,000,000.0 $3,000,000.0 $3,000,000.0
$4,500,000.0 $4,500,000.0 $4,500,000.0 $4,500,000.0

$0.0 $0.0 $0.0 $1,800,000.0


$0.0 $0.0 $0.0 $0.0
$0.0 $0.0 $0.0 $1,800,000.0
$0.0 $0.0 $0.0 $720,000.0
$0.0 $0.0 $0.0 $1,080,000.0
$0.0 $0.0 $0.0 $1,080,000.0
ht of Debt)}x(1-Tax Rate)]

PV of Investment Cash Inflows PV of Cash Inflows


$17,600,000.00 $0.00 $0.00
$2,400,000.00 $2,880,000.00 $2,880,000.00
$909,090.91 $4,500,000.00 $4,090,909.09
$826,446.28 $4,500,000.00 $3,719,008.26
$751,314.80 $4,500,000.00 $3,380,916.60
$683,013.46 $4,500,000.00 $3,073,560.55
$620,921.32 $4,500,000.00 $2,794,145.95

$23,790,786.77 $25,380,000.00 $19,938,540.46


-$3,852,246.31

PV of Investment Cash Inflows PV of Cash Inflows


$17,600,000.00 $0.00 $0.00
$2,400,000.00 $2,880,000.00 $2,880,000.00
$909,090.91 $4,500,000.00 $4,090,909.09
$826,446.28 $4,500,000.00 $3,719,008.26
$751,314.80 $4,500,000.00 $3,380,916.60
$683,013.46 $4,500,000.00 $3,073,560.55
$620,921.32 $4,500,000.00 $2,794,145.95

$23,790,786.77 $25,380,000.00 $19,938,540.46

-$3,852,246.31

PV of Investment Cash Inflows PV of Cash Inflows


$16,480,000.00 $0.00 $0.00
$2,400,000.00 $2,880,000.00 $2,880,000.00
$970,873.79 $4,500,000.00 $4,368,932.04
$942,595.91 $4,500,000.00 $4,241,681.59
$915,141.66 $4,500,000.00 $4,118,137.47
$888,487.05 $4,500,000.00 $3,998,191.72
$862,608.78 $4,500,000.00 $3,881,739.53

$23,459,707.19 $25,380,000.00 $23,488,682.34

$28,975.16

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