The MacCauley Company has sales of $200 million and total operating expenses (excluding depreciation) of $130...

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The MacCauley Company has sales of $200 million and totaloperating expenses (excluding depreciation) of $130 million.Straight-line depreciation on the company's assets is $15 millionover 4 years. The Upfront Cost equals to the total depreciablevalue on the company’s assets. Assume that all taxable income istaxed at 30 percent. Assume also that net operating working is 3%of sales in each year. Calculate the MacCauley Company's WACC using4% cost of debt, 12% cost of equity. There is 45% equity and 55%debt are on the company’s balance sheet. What is NPV? Would youinvest in the project? Is IRR greater or smaller than WACC? What isthe payback period? (There is no salvage value at the end of 4years)

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Calculation of WACCWeight of debt 55 Cost of debt 4 Weight of equity 45 Cost of Equity 12 Tax rate 30WACC Weight of debt x Cost of debt x 1 tax rate Weight ofEquity x Cost of Equity 55 x 4 x 130 45 x 12 55 x 4x 70 45 x 12 154 54 694Calculating upfront costAnnual straight line depreciation 15 millionTotal upfront cost No of years x Annual straight linedepreciation 4 x 15 60 millionCalculating investment in net workingcapitalWorking capital required at beginning of year Sales for theyear x 3Working capital required in year 0 or beginning of year 1 Sales for year 1 x 3 200 x 3 6 millionIncremental See Answer

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The MacCauley Company has sales of $200 million and totaloperating expenses (excluding depreciation) of $130 million.Straight-line depreciation on the company's assets is $15 millionover 4 years. The Upfront Cost equals to the total depreciablevalue on the company’s assets. Assume that all taxable income istaxed at 30 percent. Assume also that net operating working is 3%of sales in each year. Calculate the MacCauley Company's WACC using4% cost of debt, 12% cost of equity. There is 45% equity and 55%debt are on the company’s balance sheet. What is NPV? Would youinvest in the project? Is IRR greater or smaller than WACC? What isthe payback period? (There is no salvage value at the end of 4years)