Finance

BCO222 BUSINESS FINANCE II Task brief & rubrics

Question 1 (25 points):

Shearman Corp. has got a €248 EBIT. Taxes on income are 28%. Depreciation charges, €5,2 M. Increase in WCR, €48 M. And new investments in production plants €17 M. Compute the free cashflow of the company.

Question 2 (25 points):

International Construction Co. was performing a road show to raise capital for developing its next construction project, a new road connecting two small towns. The total cost of the project amounted to €1.718 M (million). On the other hand, the following cashflows were expected on a yearly basis, at the end o every year, respectively: €472 M, €501 M, €584 M, €617 M, €702 M, €781 M. Given the risk of the project, the consensus among the prospective investors attending the road show was that the project should yield a minimum 20% return, annually. According to this,

Is the project worth undertaking it?

What is the internal Rate of Return, IRR, of the project?

Question 3 (50 points):

DCorp Inc. is pondering whether undertaking an investment project. The project consists of contributing €228 M in fixed assets plus €60 in working capital requirements. Additionally, DCorp’s analysts have performed the exploitation analysis shown below:

P&L STATEMENT	0	1	2	3	4	5
Sales		420,0	462,0	508,2	559,0	614,9
COGS		197,4	217,1	238,9	262,7	289,0
Gross Margin		222,6	244,9	269,3	296,3	325,9
Oper. Expenditure		84,0	92,4	101,6	111,8	123,0
Depreciation		4,2	4,6	5,1	5,6	6,1
EBIT		134,4	147,8	162,6	178,9	196,8
Free Cashflow, FCF

If the tax bracket on income for such a project is 40%, please, compute

· The free cashflows of the project

· The IRR, internal rate of return, IRR

· The NPV if the required return is 18%