Epiphany Industries is considering a new capital budgeting project that will last for three years.Epiphany plans on using a cost of capital of 12% to evaluate this project. Based on extensiveresearch, it has prepared the following incremental cash flow projections:Year13Sales (Revenues in $)Cost of Goods Sold (50% of Sales)Depreciation100,00050,00030,00020,000100,00050,00030,00020,000100,00050,00030,00020,000EBITTaxes (21%)Unlevered Net Income42004200420015,800DepreciationChanges to Working CapitalCapital Expenditures15,80030,000500015,80030,000-10,00030,0005000-90,000Epiphany would like to know how sensitive the project's NPV is to changes in the discountrate. How much can the discount rate vary before the NPV reaches zero?

NPV NPV is a capital budgeting tool to decide on whether the capital project should be accepted or…

Year 1 Sales (Revenues in $) Cost of Goods Sold (50% of Sales) Depreciation EBIT 100,000 50,000 30,000 20,000 100,000 50,000 30,000 20,000 4200 100,000 50,000 30,000 20,000 Taxes (21%) Unlevered Net Income 4200 4200 15,800 Depreciation Changes to Working Capital Capital Expenditures 15,800 30,000 15,800 30,000 -10,000 30,000 5000 5000 -90,000 phany would like to know how sensitive the project's NPV is to changes in the discount . How much can the discount rate vary before the NPV reaches zero?

Year 1 Sales (Revenues in $) Cost of Goods Sold (50% of Sales) Depreciation EBIT 100,000 50,000 30,000 20,000 100,000 50,000 30,000 20,000 4200 100,000 50,000 30,000 20,000 Taxes (21%) Unlevered Net Income 4200 4200 15,800 Depreciation Changes to Working Capital Capital Expenditures 15,800 30,000 15,800 30,000 -10,000 30,000 5000 5000 -90,000 phany would like to know how sensitive the project's NPV is to changes in the discount . How much can the discount rate vary before the NPV reaches zero?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 2PROB

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