A. B Please analyze the NPV and IRR of spreadsheet A and spreadsheet B. Debt: No

Question

A.

B

Please analyze the NPV and IRR of spreadsheet A and spreadsheet B.

Debt: No of Bonds 7,000 Tenure(Yr) 18 Kd 4.60% Cost of Debt Face value of Bond $1,000 Coupon 5% Semi-Annual Ke = 9.00% Cost of Equity Current Bond price $1,048 Wd 59.47% Weight of Debt Total Debt (D) $7,336,000 Tax rate 40% We 40.53% Weight of Equity Beta 0.8 No of Share 100,000 D1= $3.00 Krf = 2.50% Current price P0 $50 g= 3.50% MRP= 10% Total Equity ( E) $5,000,000 Ks = 9.50% Ks = 8.50% WACC= 5.29% Cost of Machine $260,000 Life (Yrs) 7 Cost of Modification $40,000 Salvage $30,500 Increase in WC $5,000 EBITDA $60,000 Year 0 1 2 3 4 5 6 7 Cost ($300,000) Increase in working capital ($5,000) EBITA $60,000 $60,000 $60,000 $60,000 $60,000 $60,000 $60,000 Depreciation ($42,857) ($42,857) ($42,857) ($42,857) ($42,857) ($42,857) ($42,857) EBT $17,143 $17,143 $17,143 $17,143 $17,143 $17,143 $17,143 Taxes $(6,857) $(6,857) $(6,857) $(6,857) $(6,857) $(6,857) $(6,857) PAT $10,286 $10,286 $10,286 $10,286 $10,286 $10,286 $10,286 Add Back Depreciation $42,857 $42,857 $42,857 $42,857 $42,857 $42,857 $42,857 Recapture of net working capital $5,000 Salvage Value $30,500 Net cash flow ($305,000) $53,143 $53,143 $53,143 $53,143 $53,143 $53,143 $88,643 NPV $24,033.91 IRR 7.31%

Explanation / Answer

In general, a positive NPV implies that the project is going to result in profits and will add value to the firm. In both the tablzs, NPV is positive, so the project should be accepted.

IRR stands for internal rate of return and measures the rate of return of the project. It is usually compared with WACC as WACC is the minimum rate of return required from a project. So, if IRR is higher than WACC, the project will result in profits and will add value to firms. In both the tables, IRR is higher than WACC, so projects should be accepetd.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.