Expansion Project

ABC company wants to setup a new project. Following are the invest
Building
Investment = 50,000
Depreciation Rate (SLM) - 5%
Market Value of building after 5 years = 30,000
Equipment
Investment = 25,000
Depreciation Rate (SLM) - 20%
Market Value of equipment after 5 years = 7,000
Working Capital
Investment = 20,000
Project Funding
Project is funded with a D/E = 2. Interest Rate is 15%. Debt is repaid in 5 Equal

Life of Project is 5 years

Annual Sales = 1,00,000, sales is expected to grow by 10% from year-2 onwar
Variable Manufacturing costs = 50% of Total Sales
Fixed Production overhead, excluding depreciation = 15,000
Applicable tax rate = 40%
Cost of capital = 15%

Find NPV & IRR

ing are the investment needed

bt is repaid in 5 Equal Annual Installments at the end of each year

from year-2 onwards

 Year-0 Year-1 Year-2 Year-3 Year-4 Year-5

Investment Phase
Building
Equipment
Working Capital
Total investment

Debt
Equity

Debt Schedule
Beg Debt
Interest
EAI
End Debt

Operations Phase
Sales 10%
Variable Cost
Fixed Production overhead
Depreciation
Interest
PBT
Tax
PAT

Terminal Phase
Building Sale
Tax Impact due to building sale
Equipment Sale
Tax Impact due to equipment sale
Working Capital Reversal
Total Terminal Cash Flow

Calculation of FCFE
Total Investment
Debt Raised
PAT
Depreciation
Debt Repaid
Total Terminal Cash Flow
FCFE

IRR
NPV 15%

Building
Depreciation
Net Book Value

Equipment
Depreciation
Net Book Value