Collect the annual income statement of any company you know well for last four fiscal years. The selected company must be in process of expanding its business and plan to invest in new investment project. As a newly hired MBA in the capital budgeting division, you have bem asked to evaluate a new project using the Weighted Average Cost of Capital (WACC), Adjusted Present Value (APV), and Flow to Equity (FTE) methods. You will need to compute the appropriate cost of capital and the net present values with each method. Because this is the first assignment with the company, they want you to demonstrate your ability to apply the different methods of project evaluation. You must seek required information necessary to determine the free cash flows. Create spreadsheet in Excel to do all your calculations.

 

Note: Any information is not availabe you can assum and provide the relevant informations for asignmnet.

 

Questions

A)     Determine the WACC for the company. Compute the NPV of the new project based on the free cash flows you calculated using WACC( 40 Marks)

B)      Determin the NPV using the APV and FTE method. In both cases , assume the company maintained the target leverage ratio you computed in WACC ( 40 Marks)

 

C)      Compare the results under the three methods and explain how the resulting NPV’s are achieved under each three different methods ( 20 Marks)

 

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