Financial Management: Incremental Cash Flows, NPV, IRR, Cost of Equity and WACC

FINANCIAL MANAGEMENT
STUDENT ID:
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Section 2
Question 1
A) The incremental cash flows from this project are indicated below.
Explanations
1) EBITDA = Revenue – Operating Expenses
2) Incremental Annual Revenue = 300500*4 + 4500*3000 = $14,702,000 = $ 14.702 million
3) Operating expenses for year 1 and year at 75% of incremental revenues while for the later
years charged at 60%.
4) EBIT = EBITDA- D&A
5) D&A = (15.3/5) = $ 3.06 million
6) (1-t) = 1-0.15 = 0.85
7) D&A is added back after net income computation since it is a non-cash charge and was
included only for the tax shield.
8) Cash flow from operations = Net income + D&A
9) Working capital initially invested in recovered at the end of the project.