ACCG 253 PAL Weeks 1 and 2 Solutions 1.

(i) From Income Statement, EBIT 56, Depreciation 6, Taxes 23, mil. Operating CF 56 6 23 $39 mil (ii) From Balance Sheet, Net Fixed Assets at end of FY2010 136, Net Fixed Assets at end of FY2009 130; From Income Statement, Depreciation 6 mil. Net Capital Spending 136 130 6 $12 mil (iii) From Balance Sheet, Total Current Assets at end of FY2010 102, Total Current Liabilities at end of FY2010 29, Total Current Assets at end of FY2009 89, Total Current Liabilities at end of FY2009 30, Change in NWC (102 29) (89 30) $14 mil. mil (iv) a. From Income Statement, Interest Paid 7, Dividends Paid 12; From Balance Sheet, Long Term Debt at end of FY2010 30, Long Term Debt at end of FY2009 29, Ordinary Shares at end of FY2010 50, Ordinary Shares at end of FY2010 45, 7 (30 29) 12 (50 45) mil. CF from Assets $13 mil b. From (i) to (iii), Operating CF 39, NCS 12, Change in NWC 14, mil, CF from Assets 39 12 14 $13 mil same as (a) above. 2. The income of project A makes a 7-year annuity. NPVA -60000 15000
( . . )

$8456.35 2 d.p. 10000 1.12

Discounting all future incomes of project B, NPVB -60000 40530 1.12 60640 1.12 $5232.62 2 d.p. The decision is to invest in project A. (i) 3. (i) EAR (1 (ii) (ii) $1000 (1 4. $1000 (1 (1
. .

) -1 ) -1 ) 6.17% p.a. 2 d.p. $1127.16 2 d.p. $1500 1.5

. .

0.04) (1.04) t

10.34 years 2 d.p.