Calculate the additional funds needed

Reference no: EM132757176

Question: Calculate the additional funds needed: The current financial state is as follows:Current WACC = 18.7%

The CEO is concerned. Sales have been stagnating for the past several years. He has tasked the product development team to recommend several projects to reenergize sales.

Current Margins are 25%

Current Annual Sales are $104 million

Project 1 is a 6-year project. It will require the following investment:

New Equipment $750,000 expected life of 8 years.

Increase in net working capital NWC of $150,000

Expected COGS cost of 75%

Expected Profit Margin of 25%

The best case scenario is sales in year one will be $1,500,000 and increase by 8% from year 2 through year 5. Sales are expected to decline by 10% in year 6.

The worst case scenario is that sales in year one will be $1,100,000 and increase by 3% from year 2 through year 5. Sales are expected to decline by 15% in year 6.

At the end of year 6 it is expected the equipment will have a salvage value of $50,000. Also at the end of year 6 we will recover the $150,000 in NWC at the end of the project.

You have discussed financing with your bank. They are willing to provide funding but only in $100,000 increments.

Reference no: EM132757176

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