december 13 problems-1

8/3/2019 December 13 Problems-1

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What is the NPV of this project?

It requires an initial investment of $5,000

Revenues will be $2,000 in year one, growing by $5,00Operating expenses will be $1,000 in year one, growin

Depreciation will be $1,000 in year 1 doubling each ye

Capital investment required to maintain the facility will

The company expects to sell $1,000 less than it collects

The company's stock is consistently 15% less risky tha

The overall stock market is expected to grow at 15% anThe short end of the yield curve is currently at 5%

The company's bonds current have a YTM of 7%

The company is in the 30% tax bracket

The company finances itself with 3 times as much equit



annually through year 5by 25% annually through year 5

r

be $8,000 in years 3, 4 and 5

in years 2 to 5

the market

nually

y as debt



5

22,000$2,441$

19,559$

16,000$

3,559$

1,068$

2,491$

16,000$

18,491$

(8,000)$

1,000$11,491$

6,713$





Revenues will be $0 in year one, growing to $1,000 in year 2

Operating expenses will be $100 in year 2, growing by 15% aDepreciation will be $1,000 in years 3, 4 and 5

Capital investment required to maintain the facility will be $1

At the end of year 5, the company will sell the facility for exa

The company builds $750 of additional inventory every year

The company's stock has consistently delivered twice the mar

The market currently quotes the company's bonds at YTM of


The company finances itself with 4 times as much debt as equ

The stock market has grown by 12% per year

Treasuries yield 5%



and $3,000 in years 3 to 5

nually through year 5

000 every year

tly $2,000

et's return

1% over treasury bonds

ity





Revenues will be $0 in year one, growing to $1,000 in year 2 and $3,000 in years

Operating expenses will be $100 in year 2, growing by 15% annually through yea

Depreciation will be $1,000 in years 3, 4 and 5

Capital investment required to maintain the facility will be $1,000 every year

At the end of year 5, the company will sell the facility for exactly $2,000The company builds $750 of additional inventory every year

The company's stock has consistently delivered twice the market's return

The market currently quotes the company's bonds at YTM of 1% over treasury bo


The company finances itself with 4 times as much debt as equity


Treasuries yield 5%

0 1 2 3

Revenues -$ 1,000$ 3,000$OPEX 100$ 115$

Op Inc. 900$ 2,885$

Depreciation 1,000$

Taxable Income -$ 900$ 1,885$

Tax -$ 360$ 754$

After-tax Income -$ 540$ 1,131$

Depreciation -$ -$ 1,000$

NOPAT -$ 540$ 2,131$

CAPEX (10,000)$ (1,000)$ (1,000)$ (1,000)$

WC (750)$ (750)$ (750)$FCF (10,000)$ (1,750)$ (1,210)$ 381$

PV = (10,000)$ (1,640)$ (1,063)$ 314$

NPV = (10,397)$

Cost of Equity = 19.0%

Cost of Debt = 3.6%

WACC = 6.7%



3 to 5

r 5

nds

4 5

3,000$ 3,000$132$ 152$

2,868$ 2,848$

1,000$ 1,000$

1,868$ 1,848$

747$ 739$

1,121$ 1,109$

1,000$ 1,000$

2,121$ 2,109$

(1,000)$ 1,000$

(750)$ (750)$371$ 2,359$

286$ 1,707$





Revenues will be $50,000 in year one, growing by 35% throu

Operating expenses will always be 60% of revenues

Depreciation will always be 10% of revenuesCapital expenditures will be $50,000, growing at the same rat

The company adds an additional 1% of each year's revenues t

The company's stock has consistently delivered 150% of the

The market currently quotes the company's bonds at 2% over


The company finances itself with twice as much debt as equit


Treasuries yield 5%

After year 5, FCF grows at 5% forever



h year 5.

as revenues for that year

Accounts Receivable

arket's return

reasury bonds





Revenues will be $50,000 in year one, growing by 35

Operating expenses will always be 60% of revenues

Depreciation will always be 10% of revenuesCapital expenditures will be $5,000 in year 1, growing

The company adds an additional 1% of each year's rev

The company's stock has consistently delivered 150%

The market currently quotes the company's bonds at 2


The company finances itself with twice as much debt


Treasuries yield 5%

After year 5, FCF grows at 5% forever

0 1 2 3

Revenues 50,000$ 67,500$ 91,125$

OPEX 30,000$ 40,500$ 54,675$

Op Inc. 20,000$ 27,000$ 36,450$

Depreciation 5,000$ 6,750$ 9,113$

Taxable Income 15,000$ 20,250$ 27,338$

Tax 6,000$ 8,100$ 10,935$

After-tax Income 9,000$ 12,150$ 16,403$

Depreciation 5,000$ 6,750$ 9,113$

NOPAT 14,000$ 18,900$ 25,515$CAPEX (100,000)$ (5,000)$ (6,750)$ (9,113)$

WC (500)$ (675)$ (911)$

FCF (100,000)$ 8,500$ 11,475$ 15,491$

PV = (100,000)$ 8,500$ 11,475$ 15,491$



NPV = 226,422$


Cost of Debt = 4.2%

WACC = 12.0%



through year 5.

at the same rate as revenues each year

enues to Accounts Receivable

of the market's return

over treasury bonds

s equity

4 5 Terminal

123,019$ 166,075$

73,811$ 99,645$

49,208$ 66,430$

12,302$ 16,608$

36,906$ 49,823$

14,762$ 19,929$

22,143$ 29,894$

12,302$ 16,608$

34,445$ 46,501$(12,302)$ (16,608)$

(1,230)$ (1,661)$

20,913$ 28,233$ 29,644$

20,913$ 28,233$ 241,810$





Revenues will be $25,000 in years 3 to 6

Operating expenses will be $10,000 every year

Depreciation will be $5,000 growing by 10% every yearCapital expenditures will be $2,000 every year that there are r

The company adds an additional $5,000 every year to Accoun

The company's stock has consistently been half as risky as th

The market currently quotes the company's bonds at double t


The company finances itself with twice as much equity as deb


Treasuries yield 5%

FCF grows by 2% forever



evenues

ts Payable

market

e yield of treasury bonds

t





Revenues will be $25,000 in years 3 to 6

Operating expenses will be $10,000 every year

Depreciation will be $5,000 in year 1 growing by 10%Capital expenditures will be $2,000 every year that there

The company adds an additional $5,000 every year to Ac

The company's stock has consistently been half as risky

The market currently quotes the company's bonds at dou


The company finances itself with twice as much equity a


Treasuries yield 5%

FCF grows by 2% forever

0 1 2 3 4

Revenues -$ -$ 25,000$ 25,000$

OPEX 10,000$ 10,000$ 10,000$ 10,000$

Op Inc. (10,000)$ (10,000)$ 15,000$ 15,000$

Depreciation 5,000$ 5,500$ 6,050$ 6,655$

Taxable Income (15,000)$ (15,500)$ 8,950$ 8,345$

Tax (3,000)$ (3,100)$ 1,790$ 1,669$

After-tax Income (12,000)$ (12,400)$ 7,160$ 6,676$

Depreciation 5,000$ 5,500$ 6,050$ 6,655$NOPAT (7,000)$ (6,900)$ 13,210$ 13,331$

CAPEX (15,000)$ -$ (2,000)$ (2,000)$

WC 5,000$ 5,000$ 5,000$ 5,000$

FCF (15,000)$ (2,000)$ (1,900)$ 16,210$ 16,331$



PV = (15,000)$ (1,858)$ (1,639)$ 12,988$ 12,153$

NPV = 220,629$


Cost of Debt = 8.0%

WACC = 7.7%



are revenues

counts Payable

s the market

le the yield of treasury bonds

debt

5 6 Terminal

25,000$ 25,000$

10,000$ 10,000$

15,000$ 15,000$

7,321$ 8,053$

7,680$ 6,947$

1,536$ 1,389$

6,144$ 5,558$

7,321$ 8,053$13,464$ 13,611$

(2,000)$ (2,000)$

5,000$ 5,000$

16,464$ 16,611$ 16,943$



11,380$ 10,663$ 191,941.05$





Revenues will be $10,000 growing by 25% through year

Operating expenses will be 60% of revenues

Depreciation will be $5,000 in year 1 growing by 10%Capital expenditures will be $1,000 and the company wil

The company adds an additional $500 every year to Inve

The company's stock has consistently tracked the market

The market currently quotes the company's bonds at thre


The company finances itself with five times as much deb


Treasuries yield 5%



6

l sell all equipment for $5,000 on the last day of year 6

tory

times the yield of treasury bonds

as equity





Revenues will be $10,000 growing by 25% through year

Operating expenses will be 60% of revenues

Depreciation will be $5,000 in year 1 growing by 10%Capital expenditures will be $1,000 every year and the c

The company adds an additional $500 every year to Inve

The company's stock has consistently tracked the market

The market currently quotes the company's bonds at thre


The company finances itself with five times as much deb


Treasuries yield 5%

0 1 2 3 4

Revenues 10,000$ 12,500$ 15,625$ 19,531$

OPEX 6,000$ 7,500$ 9,375$ 11,719$

Op Inc. 4,000$ 5,000$ 6,250$ 7,813$

Depreciation 5,000$ 5,500$ 6,050$ 6,655$

Taxable Income (1,000)$ (500)$ 200$ 1,158$

Tax (200)$ (100)$ 40$ 232$

After-tax Income (800)$ (400)$ 160$ 926$

Depreciation 5,000$ 5,500$ 6,050$ 6,655$

NOPAT 4,200$ 5,100$ 6,210$ 7,581$CAPEX (5,000)$ (1,000)$ (1,000)$ (1,000)$ (1,000)$

WC (500)$ (500)$ (500)$ (500)$

FCF (5,000)$ 2,700$ 3,600$ 4,710$ 6,081$

PV = (5,000)$ 2,400$ 2,844$ 3,308$ 3,796$



NPV = 19,002$


Cost of Debt = 12.0%

WACC = 12.5%



6

mpany will sell all equipment for $5,000 on the last day of year 6

tory

times the yield of treasury bonds

as equity

5 6

24,414$ 30,518$

14,648$ 18,311$

9,766$ 12,207$

7,321$ 8,053$

2,445$ 4,154$

489$ 831$

1,956$ 3,324$

7,321$ 8,053$

9,277$ 11,376$(1,000)$ 4,000$

(500)$ (500)$

7,777$ 14,876$

4,315$ 7,338$

december 13 problems-1

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