Case Study Exercises

1. For each funding option, perform a spreadsheet analysis that shows the total CFAT and its present worth over a 6-year period, the time it will take to realize the full advantage of MACRS depreciation. An after-tax return of 10% is expected. Which funding option is best for Pro-Fence? (Hint:For the spreadsheet, sample column headings are: year, GI - OE, loan interest, loan principal, equity investment, depreciation rate, depreciation, book value, TI, taxes, and CFAT.)

2. Observe the changes in the total 6-year CFAT as the D-E percentages change. If the time value of money is neglected, what is the constant amount by which this sum changes for every 10% increase in equity funding?

3. Charles noticed that the CFAT total and PW values go in opposite directions as the equity percentage increases. He wants to know why this phenomenon occurs. How should you explain this to Charles?

4. After deciding on the 50-50 split of debt and equity financing, Charles wants to know what additional bottom-line contributions to the economic worth of the company may be added by the new Victoria site. What are the best estimates at this time?

Information related to above question is enclosed below:

Attachment:- GroupProjectOption2.rar