complete the excel sheet.

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Part 3 – Justifying a Capital Investment – Due Week 7

Using the results from Part 1, evaluate the financial risk and reward on this investment. Complete the
cash flow analysis spreadsheet in the Capital Project file. The project consists of a new business
venture with the following guiding cash flow assumptions:
? The Initial capital investment (year 0) is $7,500,000.
? The Investment in working capital (year 0) is $140,000, recovered in year 6.
? The new project’s Earnings Before Interest and Taxes (EBIT) in year 1 is $1,800,000.
? Depreciation is $225,000 per year.
? The tax rate is 25%.
? The growth rate is 5% per year.
Complete the discounted cash flow analysis in the Course Project worksheet file.
1. Calculate the project’s terminal value (TV). The formula is TV = (FCF5) x (1 + g) / (r – g).
To find the TV, take the last forecast period, in our case period 5, and you’d grow this (FCF5)
by one year using the perpetual growth rate that you found earlier. This would give you free cash flow
for period 6. Then, you would divide this figure by your “r” the required rate of return (or the WACC)
minus the perpetual growth rate.
2. Calculate the Net Present Value (NPV) using a discount rate of 2% + the WACC from Part I.
3. Calculate the Internal Rate of Return (IRR)
4. Calculate the payback period of the investment
5. Explain these measures for the discounted cash flow of this investment. Is this a good deal?

YOU ARE COMPLETING PART 3 ON THE EXCEL SHEET. SOME OF THE RATIOS MAY NEED TO BE CORRECTED ON SECTION 1/ TAB1.. DOUBLE CHECK TO ENSURE CORRECT ANSWERS FOR PART 3(THE 3RD TAB)