University of La Verne
College of Business & Public Management
BUS 500D Business Finance Online
Assignment #4
This work represents 13% of your course grade.
Please post to Blackboard by Monday February 29 at Midnight. Make sure your name is on all file titles.
Question #1: WACC & Capital Budget Analysis (Chapters 9-10-11) – 75%
Based on the inputs below prepare a capital budget analysis for this Base Case using the Net Present Value, Internal Rate of Return, Profitability Index and Payback in years methods, determining whether the project is feasible. Please show your spreadsheet calculations and your final determinations of “go” or “no go” on the project. Use your Capital Budget Analysis from Week #6 as an example for this analysis.
Project Inputs:
WACC – Debt is 75% and Equity is 25% of this firm’s capital structure. Interest rate on the debt is 7.5%, firm’s tax rate is 30%. Firm’s beta is 1.25, Risk Free Rate is 2.0%, Market Return Rate is 11.0%.
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 - $30.0
SEE EXCEL SHEET FOR ANSWER 1.
Question #2: AFN Forecasting (Chapter 12) – 25%
In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the firm's additional funds needed (AFN) for next year. The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year?
Last year's sales = S0
$200,000
Last year's accounts payable
$50,000
Sales growth rate = g
20%
Last year's notes payable
$15,000
Last year's total assets =...