Perform a capital expenditure analysis by answering the following questions or completing the tasks.

1. What is the owner’s required rate of return (KE) for the project? Using the Security Market Line equation from Chapter 4, show your calculations and display this answer with 2 decimal places (i.e. 14.76%).

2. a. How much will be spent on the gross fixed assets in Year 0?

b. How much money will be spent on working capital in Year 1?

c. Given that we have already spent money on working capital in year 1, how much additional working capital will be spent in year 2?

3. Use your full income statement from Part A and adjust it to determine the after-tax operating cash flow for the project for 5 years. Show your full statement (starting with revenues), not a shortened or summary version.

4. What will be the weighted average cost of capital (KA) for the project? Show your calculations and display this answer with 2 decimal places (i.e. 12.12%).

5. a. What is the gross sales price for the property at the end of year 5? Show your calculations.

b. How much is the capital gains tax? Show your calculations.

c. How much is the recaptured depreciation tax? Show your calculations.

d. Calculate the net sales price (after taxes) using a, b & c above.

6. Using the answers to questions #2a, #2b, #2c, #3, and #5d, put ALL of the cash flows on a timeline (both inflows and outflows). It should be such that you have one net cash flow per year, including year 0. A good template to use is on the top of page 234 of the textbook.

7. What is the payback period for the project? Calculate the payback period with at least one decimal place and show your calculations (i.e. 4.2 years).

8. What is the IRR of the project? (Use the IRR function in Excel to calculate the IRR. Include this on your cash flow statement from Question #3). Make sure that you report the IRR using two decimal places (Example: IRR=14.23%).

9. What is the NPV of the project? (Use the NPV function in Excel to calculate NPV. Include this on your cash flow statement from Question #3). Round your answer to the nearest dollar.

10. Should the project be completed? Why or why not?

Carefully explain your answers in paragraph form. A single sentence explanation is insufficient; make sure you discuss the appropriate analytical tools you have used to reach your conclusion.