Secondmidtermtest

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Exercise 1 Snapfat just raised money on the market and is plann ing to invest into a new business unit. The busines s plan highlights these numbers: - Initial investment in new capital expenditures: € 20 million (of which € 4 million for a technical plant) - Expected cash flows (gross of taxes on corporate income): € 3 million (year 1), € 6 million (year 2) , € 10 million (year 3), € 14 million (year 4), € 6 million (year 5) - Cost of capital (unlevered) k*: 12% - Tax rate to be applied on cash flows: 22% Compute the net present value of the project under the following financing options: 1. The project is financed with the cash raised 2. The project is financed partially with cash and partially with a new equity issue (the costs for th e issue are equal to € 0.5 million, paid immediately, and are deductible from the taxable income) 3. The project is financed partially with cash and partially with debt: the debt (€ 10 million) is rai sed at time 0 and paid back 50% at time 3, 50% at time 4 (annual interest rate on the debt: 5%) 4. The project is financed partially with cash and partially with debt: the company wants to keep the leverage (debt to value V of the project) always equal to 30% (annual interest rate on the debt: 5%) Compute in case 4. the expected profitability k E for shareholders and the debt to be raised at time 0. Compute the net present value of the project in this last case: 5. The technical plant is not bought at time 0 (avo iding to spend the money immediately) but is obtain ed through a leasing contract, with the payment of an annual fee (deductible from the taxable base) equal to € 1 mi llion, from time 1 to time 5; other capital expenditures at time 0 are financed with cash available Should we expect in case 5. a profitability for shareholders k E…