Can someone help with this problem?
You are provided with the projected income statements for a project:
Year 1 2 3 4
Revenues ($) $10,000 $11,000 $12,000 $13,000
-Cost of goods sold ($) $4,000 $4,400 $4,800 $5,200
-Depreciation $4,000 $3,000 $2,000 $1,000
=EBIT $2,000 $3,600 $5,200 $6,800
• The tax rate is 40%.
• The project required an initial investment of $15,000 and an additional investment of $2,000 at the end of year two.
• The working capital is anticipated to be 10% of revenues, and the working capital investment has to be made at the beginning of each period.
a) Estimate the free cash flow to the investors in the firm.
b) Estimate the payback period for investor in the firm.
c) Estimate the NPV to investors in the firm, if the cost of capital is 12 percent. Would you accept the project?
d) Estimate the IRR to investors in the firm. Would you accept the project?
