Corporate Finance Analysis and Project Report - WACC, NPV, Scenarios

This report provides a comprehensive analysis of corporate finance principles. It begins by calculating the Weighted Average Cost of Capital (WACC) for a company, interpreting its financial position based on the costs of equity and debt. The report then evaluates the profitability of a proposed project using Net Present Value (NPV) analysis, considering sales, costs, and depreciation to determine cash flows and present values. Furthermore, the report assesses the project's viability under both best-case and worst-case scenarios, analyzing the impact of varying sales revenues and costs on the NPV. Finally, the report defines the role of a finance analyst in the context of the project, emphasizing the importance of efficiency, revenue growth, and investor relations. The report references key academic sources to support its findings.

Corporate Finance

TABLE OF CONTENTS
A Ascertaining the weighted average cost of capital..................................................................3
B Analysing the condition of the proposed project in a favourable state...................................4
C Determining the project must go ahead as per the case scenario............................................5
D Determining the role of finance analyst..................................................................................6
REFERENCES................................................................................................................................8

A Ascertaining the weighted average cost of capital
Cost of equity share capital:
Particulars amount
Share price (ordinary shares) 42
O/S shares 30000000
Market capital (E) 1260000000
Beta rate 2.639
Risk free rate 0.035
Expected market return 0.1252
Market risk premium 0.0902
cost of equity 27.30%
Cost of debt capital:
Particulars amount
Face value 100
O/S Bonds 5000000
Coupon rate 0.1
market price 92.34
Coupon 10
market value 461700000
Years of maturity 20
Corporate tax 0.34

Cost of debts 6.60%
Working Cost of Capital:
particulars Weight
After tax
weight total weight
V 1721700000
Weight of equity 73.18% 24.88% 18.21%
Weight of debt 26.82% 9.12% 2.45%
cost of equity 0.102
Cost of debt 0.079 WACC 20.65%
Interpretation: By considering the costs of equity and cost of debt over the equity share
capital and bonds of the firm the WACC has been analysed as 20.65%. Therefore, such analysis
reflects the favourable state of the firm's financial position.
B Analysing the condition of the proposed project in a favourable state
Profitability of the proposed plan through NPV:
Particulars 1 2 3
Sales 1562500 1562500 1562500
less: Variable cost 300000 300000 300000
Less: Fixed costs 200000 200000 200000
profit 1062500 1062500 1062500
Add: Depreciation 1000000 1000000 1000000
cash flow 2062500 2062500 2062500
Net cash flow 2062500 2062500 2062500
Years Cash flow
Discounting
factor @ 10% Present value
0 3000000

1 2062500 0.91 1875000
2 2062500 0.826446281
1704545.45454
545
3 2062500 0.7513148009
1549586.77685
95
Total present value
5129132.23140
496
Initial investment 3000000
Net present value
2129132.23140
496
Interpretation: By considering the revenue gathered by the firm through 3 years of
operations it has been analysed that the selling rate and variable rate is quite favourable and
which is very helpful in facilitating the most adequate cash flow of these years. Thus, in relation
with analysing the profitability of such proposed plan there has been consideration of the
discounting factor as 10% and which presents the net present value for 2129132.231. Thus, it
ascertains that the proposed plan is favourable and the projects will have profitable return in the
coming time.
Working note
quantity cost amount
Sales 1250000 1.25 1562500
variable cost 1250000 0.24 300000
Fixed cost 200000
operating cash flow 500000
Initial investment 3000000
C Determining the project must go ahead as per the case scenario
Best case scenario

Best case scenario 1 2 3
Sales 3100000 3100000 3100000
less: Variable cost 550000 550000 550000
Less: Fixed costs 200000 200000 200000
profit 2350000 2350000 2350000
Add: Depreciation 1000000 1000000 1000000
cash flow 3350000 3350000 3350000
Net cash flow 3350000 3350000 3350000
Years Cash flow
Discounting
factor @10% Present value
0 30000000
1 3350000 0.9090909091
3045454.54545
455
2 3350000 0.826446281
2768595.04132
231
3 3350000 0.7513148009
2516904.58302
028
Total present value
8330954.16979
714
Initial investment 30000000
Net present value -21669045.830
The worst case scenario
Worst case scenario 1 2 3
Sales 1254000 1254000 1254000
less: Variable cost 256500 256500 256500
Less: Fixed costs 200000 200000 200000
profit 797500 797500 797500

Add: Depreciation 1000000 1000000 1000000
cash flow 1797500 1797500 1797500
Net cash flow 1797500 1797500 1797500
Years Cash flow
Discounting
factor @ 10% Present value
0 30000000
1 1797500 0.9090909091
1634090.90909
091
2 1797500 0.826446281
1485537.19008
264
3 1797500 0.7513148009
1350488.35462
059
Total present value
4470116.45379
414
Initial investment 30000000
Net present value -25529883.55
Interpretation: In relation with the both the case scenarios it can be said that the business
must make changes in the operations and have the appropriate increment in the sales revenue.
The discounting rate is need to be effective as it must provide the favourable present value on the
given cash flow.
D Determining the role of finance analyst
In relational with the plans of CWC of facilitating the bottled water there are various
analysis and the measurements were made. However, in accordance with such identification it
can be said that there is need to have increment in the efficiency of the business (Finance, 2017).
Thus, as the sales revenue increases the business will have favourable gains as well as there will
be allocation of all the costs such as variable and fixed costs on the other side the company need

to seek for the funds and make the appropriate dividend policy which will be attractive to the
investors to make the secured and long term investments in the organisation (Harford, 2018).

REFERENCES
Books and Journals
Finance, C., 2017. Empirical Corporate Finance. Volume A.
Harford, J., 2018. Connections and Context in Finance Research. Asia‐Pacific Journal of
Financial Studies.47(1). pp.7-20.