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University of Virginia
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PROJECT APPRAISAL 1
Project Appraisal
Name:
Institutional affiliation

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PROJECT APPRAISAL 2
Question One
The information given from the model shows that, the cost for each of the capital used to fund
the projects was obtained as follows;
The cost of the debt in this case is the same 12.65%, cost of preference shares was also obtained
as 9.88% while the cost of common equity is 13.60%. Furthermore, the cost of new equity is
given as 13.82%. All this values gives the WACC for the project as 11.95%.
Question Two
1.
The payback period for the project could not be found since the project will not payback. The
cost of capital is given as 10% while the IRR was obtained as 5%. The NPV was obtained as \$ -
2,923,884.65
2.
The scenario analysis is summarized in the table below.
One can note that, in the above table, the net present values are all negative values for the
different units sold and sale prices.
Year 0 1 2 3 4
Units Sold 2000
Sales Price 21000 21525 22063.125 22614.70313
Sales 42,000,000.00 43,050,000.00 44,126,250.00 45,229,406.25
Initial cost (25,000,000.00)
NWC (5,040,000.00) (5,166,000.00) (5,295,150.00) (5,427,528.75) (5,563,216.97)
VC (30,000,000.00) (30,000,000.00) (30,000,000.00) (30,000,000.00)
FC (1,500,000.00) (1,537,500.00) (1,575,937.50) (1,615,335.94)
Depreciation (6,000,000.00) (6,000,000.00) (6,000,000.00) (6,000,000.00)
Pre-tax Income 5,334,000.00 6,217,350.00 7,122,783.75 8,050,853.34
Tax - 1,066,800.00 1,243,470.00 1,424,556.75 1,610,170.67
Cashflow (30,040,000.00) 5,734,800.00 7,678,170.00 9,670,124.25 11,711,877.36
PV (30,040,000.00) 5,213,454.55 6,345,595.04 7,265,307.48 7,999,369.82
Cost of Capital 10%
IRR 5%
NPV (\$2,923,884.65)
Payback period NA
Units Sold
(\$2,923,884.65) 2000 2400 2880 3456
Sales Price 21000 (1,809,747,189.07) (1,762,321,443.52) (1,705,410,548.86) (1,637,117,475.26)
23100 (1,985,735,839.41) (1,933,567,519.31) (1,870,965,535.18) (1,795,843,154.22)
25410 (2,179,323,354.79) (2,121,938,202.67) (2,053,076,020.13) (1,970,441,401.08)
27951 (2,392,269,621.71) (2,329,145,954.38) (2,253,397,553.58) (2,162,499,472.63)
30746.1 (2,626,510,515.32) (2,557,074,481.25) (2,473,751,240.38) (2,373,763,351.33)

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PROJECT APPRAISAL 1 Project Appraisal Name: Institutional affiliation PROJECT APPRAISAL 2 Question One The information given from the model shows that, the cost for each of the capital used to fund the projects was obtained as follows; The cost of the debt in this case is the same 12.65%, cost of preference shares was also obtained as 9.88% while the cost of common equity is 13.60%. Furthermore, the cost of new equity is given as 13.82%. All this values gives the WACC for the project as 11.95%. Question Two 1. Year 0 1 2 3 4 Units Sold 2000 Sales Price 21000 21525 22063.125 22614.70313 Sales 42,000,000.00 43,050,000.00 44,126,250.00 45,229,406.25 Initial cost (25,000,000.00) NWC (5,040,000.00) (5,166,000.00) (5,295,150.00) (5,427,528.75) (5,563,216.97) VC (30,000,000.00) (30,000,000.00) (30,000,000.00) (30,000,000.00) FC (1,500,000.00) (1,537,500.00) (1,575,937.50) (1,615,335.94) Depreciation (6,000,000.00) (6,000,000.00) (6,000,000.00) (6,000,000.00) Pre-tax Income 5,334,000.00 6,217,350.00 7,122,783.75 8,050,853.34 Tax 1,066,800.00 1,243,470.00 1,424,556.75 1,610,170.67 Cashflow (30,040,000.00) 5,734,800.00 7,678,170.00 9,670,124.25 11,711,877.36 PV (30,040,000.00) 5,213,45 ...
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