financeFreek
New member
- Joined
- Nov 18, 2010
- Messages
- 1
So you are analyzing a project and here is what you know:
Operating Cash Flows After Tax: T=0 -26,355,875; T=1 +12,189,592; T=2 +9,883,453; T=3 +9,224,556; T=4 8,565,659
Unlevered Beta = 1.08; Risk free rate = 4.1%; Market Return= 9.1%; Straight Line Depreciation; Zero Salvage Value; Tax Rate=30%; Project Life =4 years; Capital Budget=$50 million; The Capital Structure uses 20% debt, and before tax cost of debt= 7%; WACC is to be used as discount & reinvestment rates....The question is to find Levered Beta, Cost of Equity, WACC, NPV, IRR, MIRR, and Net Income. I don't really understand how the 20% debt and 7% before tax cost of debt come into the problem especially with net income. Here is what I guessed, but please check my work!:
Levered Beta=1.269 1.08*(1+(1-30%)*(20%/80%)) Hamada Equation
Cost of Equity=10.45% 4.1%+(9.1%-4.1%)*1.269 CAPM
WACC=9.34% [20%*(7%*(1-30%))] + [80%*10.45%] WACC
*NPV=$6,111,987.82 NPV(9.34%, -26355875,{12189592,9883453,9224556,8565659})
IRR=20.29% IRR(-26355875,{12189592,9883453,9224556,8565659}) Ti-83 irr function
MIRR=15.19% MIRR(-26355875,12189592,9883453,9224556,8565659) with 9.34% on Excel
Net Income=$5,600,623 12189592 + (-26355875/4) Here i took the negative cash flow in time 0 minus investment/4 to represent depreciation
*For some reason when NPV is calculated in Excel it will only show $6111987.82, while on my calculator and by hand it is $6109322.745. Not sure why.
Operating Cash Flows After Tax: T=0 -26,355,875; T=1 +12,189,592; T=2 +9,883,453; T=3 +9,224,556; T=4 8,565,659
Unlevered Beta = 1.08; Risk free rate = 4.1%; Market Return= 9.1%; Straight Line Depreciation; Zero Salvage Value; Tax Rate=30%; Project Life =4 years; Capital Budget=$50 million; The Capital Structure uses 20% debt, and before tax cost of debt= 7%; WACC is to be used as discount & reinvestment rates....The question is to find Levered Beta, Cost of Equity, WACC, NPV, IRR, MIRR, and Net Income. I don't really understand how the 20% debt and 7% before tax cost of debt come into the problem especially with net income. Here is what I guessed, but please check my work!:
Levered Beta=1.269 1.08*(1+(1-30%)*(20%/80%)) Hamada Equation
Cost of Equity=10.45% 4.1%+(9.1%-4.1%)*1.269 CAPM
WACC=9.34% [20%*(7%*(1-30%))] + [80%*10.45%] WACC
*NPV=$6,111,987.82 NPV(9.34%, -26355875,{12189592,9883453,9224556,8565659})
IRR=20.29% IRR(-26355875,{12189592,9883453,9224556,8565659}) Ti-83 irr function
MIRR=15.19% MIRR(-26355875,12189592,9883453,9224556,8565659) with 9.34% on Excel
Net Income=$5,600,623 12189592 + (-26355875/4) Here i took the negative cash flow in time 0 minus investment/4 to represent depreciation
*For some reason when NPV is calculated in Excel it will only show $6111987.82, while on my calculator and by hand it is $6109322.745. Not sure why.
