Solution
Kushal answered on
Dec 05 2021
Solution
Capital Budgeting 9 8 7 6 5 4 3 2 1
t=0 t=1 t=2 t=3 t=4 t=5 t=6 t=7 t=8 t=9
Initial Investments -9,250,000 o Discount Rate = WACC
Working Capital Investments -520,000 520,000 o Since, we are calculating the free cash flows to the FIRM; we need to calculate the WACC using the market value of debt and equity, and Cost of debt and equity to discount the cash flows.
Sales of Assets 165,000 o Cost of debt = The cost at which the firm is issuing the debt or taking loans from institutes
Revenues 2,125,000 3,187,500 3,984,375 4,582,031 5,269,336 5,796,270 6,086,083 6,390,387 6,709,907 o Cost of Equity can be calculated using the CAPM – Capital Asset Pricing Model
variable Costs 892,500 1,338,750 1,673,438 1,924,453 2,213,121 2,434,433 2,556,155 2,683,963 2,818,161
Fixed Costs 234,000 234,000 234,000 234,000 234,000 234,000 234,000 234,000 234,000
Depreciation 1850000 2960000 1776000 1065600 1065600 532800 0 0 0 § Ke = Rf + Beta (...