Cash Flow Statement: Fulton Enterprises Case

Fulton Enterprises
Project Analysis - Stage 2

Fulton Enterprises has reviewed the project discussed last week and has decided upon further review that the Scenario 2 is the most likely cash flow.

Scenario 2: Sales in year 1 are $900,000 per year and will increase 5% per year through year 5. This scenario has a probability of 50%.

The cash flow is based on the investment of $800,000 which will last 5 years, but it will have a resale value of $75,000 in year 5, the book value. The Cost of Goods Sold is expected to run about 65% of the sales volume. Sales and Administrative Costs will be $45,000 per year. The investment will be depreciated using straight-line depreciation over the 5 year period. Working capital, which consists of increases in inventory, accounts receivables and accounts payable will be 10% of the first year sales amount and will be recovered (reversed) in year 5.

The project is going to be part of the company's capital expenditure program for 2013. The capital expenditures are to be financed 35% by bonds and 65% by equity. The bonds are 10 year bonds due in 8 years, that are paying a semi-annual 4.3% bond and are currently selling for $1.090. The stocks are currently priced at $22.53, will pay a dividend at the end of the fiscal year of $1.10, and the dividend is expected to grow at 2.0% per year. Fulton has $1,000,000 debt associated with this project, which is paid at the bond required rate. The tax rate for Fulton is 35%.

1. What is the WACC for this project?
2. Develop the cash flow, by year, for the 5 year period.
3. The Board of Directors want the hurdle rate on this project to be 2 percentage points higher than the WACC on the project. Using the information given, what are the Net Present Value, the Internal Rate of Return and the Payback on the project?
4. What would you recommend?

I need help for the above questions, 1 through 4, answered and the work shown in detail in an excel format. The cost of equity is in the question:
"The project is going to be part of the company's capital expenditure program for 2013. The capital expenditures are to be financed 35% by bonds and 65% by equity."