Calculate the incremental free cash flow for every year

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Q1. A firm is evaluating a new investment and the financial projections are given below, from year 0 to year 4. The tax rate is 34%, all cash flows occur at the end of the year, and net working capital is recovered at the end of the project. Calculate the incremental free cash flow for every year.

Year	0	1	2	3	4
investment	16000
sales		8500	9000	9500	7000
operating cost		1800	2000	2200	1700
depreciation		4000	4000	4000	4000
investment NWC	200	250	300	200	RECOVERY OF nwc

Q2. Suppose that computer manufacturer ABC Inc. has five year bonds outstanding that trade in the market at $101.25 for every $100 face value. The bonds pay semiannual interest of 3% of face value. ABC also reported a return on equity of 14% last year, and expects it to be at this level for the next several years. The return on assets was 10%. Using market values, debt constitutes 40% of the overall value of ABC. The tax rate is 35%, beta is 1.25, the risk free rate is 5% and the market risk premium is 7%. Compute the cost of equity, the cost of debt and the WACC.

Reference no: EM131704274

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