Financial Decision Making-7

Sheet1

	Tech Innovations Ltd Investment Appraisal
	Development Cost				Dividend Per Share (DPS)		£ 0.35
	Research Cost	80,000			Price Per Share (P)		£ 3.00
	Total R&D Cost				Growth Rate (g)		0%
					Tax Rate (T)		20%
	Equipment Cost	1,800,000			Common Shares Outstanding
	Salvage Value	420,000			Irredemmable Capital Loan		£ 12,000,000
	Proforma Income Statement
	Year	0	1	2	3	4	5
	Revenue
	Unit Sales	-	20,000	22,000	28,000	34,000	18,000
	Sales Price	-	280
	Total Revenue	-
	Cost of Goods Sold (COGS)	-
	Gross Profit	-
	Expenses
	Supervisor's Salary	-
	R&D Expenses		-
	Ad. & Marketing Expenses	-	(400,000)
	Depreciation Expense	-
	Total Operating Expenses
	Total Operating Profit (EBIT)
	Financing
	Interest Expense	-
	Pretax Income
	Tax Expense	-
	Net Income
	Cash Flow Projection
	Year	0	1	2	3	4	5
	Net Income
	(+) Depreciation
	Cash from Operations
	Investing Cash Flows
	Equipment Purchase		-
	Sale of Equipment	-	-	-	-	-
	Financing Cash Flows
	Dividend Payout	-
	Total Cashflow
	Weighted Average Cost of Capital (WACC) Calculation & DCF Models
	WACC CALCULATION		Formula
	Cost of Equity (Re)
	Cost of Debt (Rd)
	Market value of equity (E)
	Market value of debt (D)
	Total market value (V)
	Weight of Equity (We)
	Weight of Debt (Wd)
	WACC
	Using Calculated WACC
	Year	0	1	2	3	4	5
	Cash Flows
	Discounted Cash Flows
	NPV
	Payback Period
	Year	0	1	2	3	4	5
	Cash Flow (Operations)
	Cumulative Cash Flows
	Payback Period (in Years)
	Remarks	The project should be launched; positive NPV and Payback Period less than 5 years
	NPV CALCULATION with WACC = 18.00%
	Using previous WACC	18.00%
	Year	0	1	2	3	4	5
	Cash Flows
	Discounted Cash Flows
	NPV
	Payback Period
	Year	0	1	2	3	4	5
	Cash Flow (Operations)
	Cumulative Cash Flows
	Payback Period (in Years)
	Remarks	At, 18% WACC, the project is not viable due negative NPV. Thus do not launch.