Answer Questions 11-15 based on the following information about C Project A has

Question

Answer Questions 11-15 based on the following information about C Project A has a cost of $17.0M & delivery & installation costs of l.mne) 1o 1 SM. Weighted Average Cost of Capital 5. recast Capital Projects A&z.; (WACC)-15 %. The FCF growth rate (G) after the 5th year in the ( Terminal Value (TV)-(FCFs) (1+G)-(WACC-G) Expected Net After-Tax Free Cash Flows for Project A are shown Year Net Free Cash Flow (MS) to consider the delivery/installation costs) 5.5 8.7 11.9 15.1 12.0 4 (remember to consider the "terminal va lue")

Explanation / Answer

Cash flows would be

Year 0: -17-1.5=-18.5

Year 1: 5.5

Year 2: 8.7

Year 3: 11.9

Year 4: 15.1

Year 5: 12+Terminal Value=106.15

Terminal Value=Cash flow in Year 6/(r-g)=12*1.02/(0.15-0.02)=94.15

NPV=-18.5+5.5/(1+r)+8.7/(1+r)^2+11.9/(1+r)^3+15.1/(1+r)^4+106.15/(1+r)^5

So, IRR is that value of r at which NPV is 0

=>r=68.51%

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