Based on the inputs below prepare a capital budget analysis forthis Base Case using the Net Present Value, Internal Rate ofReturn, Profitability Index and Payback in years methods,determining whether the project is feasible. Please show yourspreadsheet calculations and your final determinations of “go” or“no go” on the project.
Project Inputs:
WACC – Debt is 70% and Equity is 30% of this firm’s capitalstructure. Interest rate on the debt is 7.5%, firm’s tax rate is22%. Firm’s beta is 1.50, Risk Free Rate is 3.0%, Market ReturnRate is 9.0%.
Project Investment Outlay, Year 0 - $1,000,000
Project Investment Life – 10 years
Project Depreciation - $100,000 / year
Project Salvage Value - $30,000
Working Capital Base of Annual Sales – 10%
Expected inflation rate per year – 3.0%
Project Tax Rate – 30%
Units sold per year – 40,000
Selling Price per Unit, Year 1 - $40.00
Fixed operating costs per year excluding depreciation -$175,000
Manufacturing (Variable) costs per unit, Year 1 - $30.00
