For a new project of a company to increase the manufacturing capacity for five years, it...

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For a new project of a company to increase the manufacturingcapacity for five years, it will purchase new equipment for$1,500,000 and be housed in a building purchased eight years agofor $4,200,000. The building will be retooled for the new projectat a cost of $500,000, including building permit fees of$25,000.
The purchased equipment will be depreciated using ModifiedAccelerated Cost Recovery System (MACRS) depreciation schedule, andsold for $250,000 in year 5.
The projected revenue for year 1 is $550,000. Subsequent year’srevenues will increase by eight percent of the preceding year’srevenues. This expansion project will result in an annualloss of revenues from an existing manufacturing operation of$100,000. Operating expenses (excluding depreciation andamortization) is estimated at 20 percent of net revenues.
Operating net working capital will rise by $250,000 and $300,000in years 1 and 2, respectively. This investment in net workingcapital reverses in the final year of the project. Annual interestexpense is $35,000.
Risk-Free Rate (10-Year U.S. Treasury) = 3%
The Equity Risk Premium = 4.5%
Tax Rate: 40%
Beta (?) = 1.2
Automaton’s Market Value of Equity / Total Capital ratio =100%
Automaton’s Market Value of Debt / Total Capital = 0%
Calculate the cost of capital, net income for years 1 through 5,Free Cash Flows (FCF) for years 0 through 5, Net Present Value andInternal Rate of Return of this project?

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1 Cost of Capital 842 NPV 3135823 See Answer

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For a new project of a company to increase the manufacturingcapacity for five years, it will purchase new equipment for$1,500,000 and be housed in a building purchased eight years agofor $4,200,000. The building will be retooled for the new projectat a cost of $500,000, including building permit fees of$25,000.The purchased equipment will be depreciated using ModifiedAccelerated Cost Recovery System (MACRS) depreciation schedule, andsold for $250,000 in year 5.The projected revenue for year 1 is $550,000. Subsequent year’srevenues will increase by eight percent of the preceding year’srevenues. This expansion project will result in an annualloss of revenues from an existing manufacturing operation of$100,000. Operating expenses (excluding depreciation andamortization) is estimated at 20 percent of net revenues.Operating net working capital will rise by $250,000 and $300,000in years 1 and 2, respectively. This investment in net workingcapital reverses in the final year of the project. Annual interestexpense is $35,000.Risk-Free Rate (10-Year U.S. Treasury) = 3%The Equity Risk Premium = 4.5%Tax Rate: 40%Beta (?) = 1.2Automaton’s Market Value of Equity / Total Capital ratio =100%Automaton’s Market Value of Debt / Total Capital = 0%Calculate the cost of capital, net income for years 1 through 5,Free Cash Flows (FCF) for years 0 through 5, Net Present Value andInternal Rate of Return of this project?