Sachin Gupta - G16101

Flash Memory Inc

Flash Memory CFO need to decide wheter to invest in a new investment Proposal or not.
NPV and IRR has been calculated in attached sheet taking below assumptions.

Cost of Debt is assumed for factor Finance

Cost of Equity is calculated by calculating private
private is estimated via average beta for the publicly traded comparable firms
Cost of Equity is calculated using =Yields to maturity for treasury Bond + private(spread for overal
1. If project is financed on existing debt/equity ratio i.e 34% debt and 66% equity
NPV for project is 2.50 Million Dollars
IRR for project is 22% which is more than WACC of 9.77 % ( Based on existing Debt(34%) and 66% eq
2. If project is financed via 18% debt and 82% equity

NPV for project is 2.48 Million Dollars

IRR for project is 23% which is more than WACC of 9.83 % ( Based on existing Debt(18%) and 82% eq

If project is financed on existing debt/equity

ratio i.e 34% debt and 66% equity

Debt Ratio
Equity Equity
Closing Share Price
Book Value per Share in $
Total Number Of Shares in million
Book Value of Firms Equity
Total(Equity + Debt)
Market Value of Firms Debt (D)
Market Value of Firms Equity in Million $ -E
V
Percentage of Financing That is Equity(E/V)
Percentage of Financing That is Debt(D/V)
Base Rate
Spread Factor
Spread Bank
Cost of Debt with Factor (Rd)
Cost of Debt with Bank
Cost Of Equity
Corporate Tax Rate (Tc)
10 Year Treasure Bond Rate
Spread for overall stock Market

34%
66%
25
13.2
1.492
19.6944
29.84
10.1456
37.3
47.4456
0.786164
0.213836
3.25%
6%
4%
9.2500%
7.2500%

unlevered

1.033981

Private
Cost Of Equity (Re)

1.202726
0.109164

WACC in Percentaage

9.768835

40%
3.70%
6%

WACC calculation

WACC calculation

If project is financed via 18% debt and 82% equity

Debt Ratio
Equity Ratio
Closing Share Price
Book Value per Share in $
Total Number Of Shares in million
Book Value of Firms Equity
Total(Equity + Debt)
Market Value of Firms Debt (D)
Market Value of Firms Equity in Million $ -E
V
Percentage of Financing That is Equity(E/V)
Percentage of Financing That is Debt(D/V)
Base Rate
Spread Factor
Spread Bank
Cost of Debt with Factor (Rd)
Cost of Debt with Bank
Cost Of Equity
Corporate Tax Rate (Tc)
10 Year Treasure Bond Rate
Spread for overall stock Market

18%
82%
25
13.2
1.492
19.6944
24.01756
4.323161
37.3
41.62316
0.896136
0.103864
3.25%
6%
4%
9.2500%
7.2500%

unlevered

1.033981

Private
Cost Of Equity (Re)

1.105885
0.103353

WACC in Percentaage

9.838288

40%
3.70%
6%

WACC calculation

Total
Book
Market
Number Book
Market
Value per value Per of Shares Value of Value of
share
share
in Million Equity
equity
1.25
6.61
9.35
847.6 5602.636 7925.06
1.36
18.13
39.84
229.3 4157.209 9135.312
1
5.48
13.9
50.3 275.644
699.17

Company
Micron
San Disk
Stac Inc

levered

Assumption

unlevered

1.033981

Debt
Equity
Market
Percentag Percentag value of Corporate
e
e
debt
TaxRate
unlevered
33%
67% 2759.507
40% 1.033980653
19%
81% 975.1478
40% 1.2781391155
0%
100
0
40%
1

New Product Investment

Figures in
Million $
Except
Percentage

Cost Of Goods Sold Percentage for new Product L

Initial Investment
Selling And Admin Expense
Advertizing Expense
Corporate Tax Rate
Gross Margin
Working Capital Percentage
Depreciation Per Year
WACC(Calculated)(Debt -34% Equity 66%)
WACC(Calculated)(Debt -18% Equity 82%)

Sales (Income)
Cost Of Good Sold(79%) of sales
Selling And Admin Expense
Advertizing Expense
R&D Expense (Already Spent)
Earning Before Income Tax (EBIT)
Income Tax
Earning After Income Tax
Depreciation (Re-Added)
Working Capital
Additional Working Capital /Per Year
Cash Flow

NPV
IRR

79%
2.2
8.36%
0.3
40%
21%
26%
0.44
9.77%
9.83%
2010
-2.2

-2.2

2011
2012
21.6
28
-17.064
-22.12
-1.80576 -2.3408
-0.3
0
0
0
2.43024
3.5392
-0.972096 -1.41568
1.458144 2.12352
0.44
0.44
5.65056
7.3248
5.65056 1.67424
-3.752416 0.88928

(Debt -34%
(Debt -18%
Equity 66%) Equity 82%)
$2.50
$2.48
23%
23%

2013
2014
2015
28
11
5
-22.12
-8.69
-3.95
-2.3408
-0.9196 -0.418
0
0
0
0
0
0
3.5392
1.3904
0.632
-1.4157 -0.55616 -0.2528
2.1235 0.83424 0.3792
0.44
0.44
0.44
7.3248
2.8776
1.308
0
-4.4472 -1.5696
2.5635 5.72144 2.3888