Course: Capital BudgetingThe first chart of information is information on the previous problem used

Course: Capital BudgetingThe first chart of information is information on the previous problem used to get the information on the second chart (value w/o terminal value)Can not use canned functions (excel functions) to solve them but have to show steps takenQ3b – 6 points3bAssume the same assumptions of the previous problem, HAL Co., except as noted below.1.)Q3b – 6 points3bAssume the same assumptions of the previous problem, HAL Co., except as noted below.1.) Assume the company has an outstanding offer to sell this product line at the terminal year, based on cash flow. What will be the value of the business at that time (2.) If 1% growth is expected, and what would be the total business value of the project?3.) After the change suggested in Q2, above, what would happen if the WACC dropped by 2%?4.) Assume management is unconvinced by the previous valuations. Your are directed to return to the original WACC assumptions, but assume a terminal value = liquid5.) Upon seeing the results from Q4, the VP of Manufacturing says, ‘I know we can get a value for the equipment at the end of the project equal to $112500.’. With thaP&LSalesCOSadj for allocGross Margin01$200,000$150,000$15,000$65,0002$200,000$150,000$15,000$65,0003$200,000$150,000$15,000$65,0004$200,000$150,000$15,000$65,000″Decrease in ContributionAdjusted Gross Margin$15,000$50,000$15,000$50,000$15,000$50,000$15,000$50,000SG&A(*) “Interest on bonds expPBT- taxPAT$40,000$0$10,000$4,000$6,000$40,000$0$10,000$4,000$6,000$40,000$0$10,000$4,000$6,000$40,000$0$10,000$4,000$6,000CASH FLOW STATEMENTPAT+ DepreciationCash Flow from Operation$6,000$112,500$118,500$6,000$112,500$118,500$6,000$112,500$118,500$6,000$112,500$118,500$0$0$0$0$35,000$1,000$30,000$35,000$1,000$30,000$35,000$1,000$30,000$35,000$1,000$30,000$112,500$112,500$112,500$112,500CAPEX$450,000Working CapitalIncr. – ARIncr. – InventoryIncr. – Curr. Lia.CASH FLOW$450,000VALUE W/O TERMINAL VALUE0.11 cost of capitalTIME01234CASH FLOW $450,000.00 $112,500.00 $112,500.00 $112,500.00 $112,500.00DISCOUNTI1 0.900900901 0.811622433 0.731191381 0.658730974PV$450,000.00 $101,351.35 $91,307.52 $82,259.03 $74,107.23NPV$100,974.86me (aka the ‘terminal value’), and the value of the business today if no further cash flow growth is expected?iquidation value. With that, what is the value of the business?h that, what is the value of the business?on cash flow. What will be the value of the business at that time (2.) If 1% growth is expected, and what would be the total business value of the project?3.) After the change suggested in Q2, above, what would happen if the WACC dropped by 2%?4.) Assume management is unconvinced by the previous valuations. Your are directed to return to the original WACC assumptions, but assume a terminal value = liquid5.) Upon seeing the results from Q4, the VP of Manufacturing says, ‘I know we can get a value for the equipment at the end of the project equal to $112500.’. With thaP&LSalesCOSadj for allocGross Margin01$200,000$150,000$15,000$65,0002$200,000$150,000$15,000$65,0003$200,000$150,000$15,000$65,0004$200,000$150,000$15,000$65,000″Decrease in ContributionAdjusted Gross Margin$15,000$50,000$15,000$50,000$15,000$50,000$15,000$50,000SG&A(*) “Interest on bonds expPBT- taxPAT$40,000$0$10,000$4,000$6,000$40,000$0$10,000$4,000$6,000$40,000$0$10,000$4,000$6,000$40,000$0$10,000$4,000$6,000CASH FLOW STATEMENTPAT+ DepreciationCash Flow from Operation$6,000$112,500$118,500$6,000$112,500$118,500$6,000$112,500$118,500$6,000$112,500$118,500$0$0$0$0$35,000$1,000$30,000$35,000$1,000$30,000$35,000$1,000$30,000$35,000$1,000$30,000$112,500$112,500$112,500$112,500CAPEX$450,000Working CapitalIncr. – ARIncr. – InventoryIncr. – Curr. Lia.CASH FLOW$450,000VALUE W/O TERMINAL VALUE0.11 cost of capitalTIME01234CASH FLOW $450,000.00 $112,500.00 $112,500.00 $112,500.00 $112,500.00DISCOUNTI1 0.900900901 0.811622433 0.731191381 0.658730974PV$450,000.00 $101,351.35 $91,307.52 $82,259.03 $74,107.23NPV$100,974.86me (aka the ‘terminal value’), and the value of the business today if no further cash flow growth is expected?iquidation value. With that, what is the value of the business?h that, what is the value of the business?

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