Show me the steps to solve Payback Analysis and Discounted Payback Analysis Sunrise Bakery Assumptions Expected Investment Cost $300,000 Risk Free Rate 0% Market Beta 0.70 Equity Risk Premium 5.50% Cost of Debt 0% Cost of Equity 3.85% Tax rate 30% WACC 3.85% Income statement (all figures are incremental) 0 1 2 3 4 5 6 Revenue (Sales) $135,000 $145,000 $155,000 $165,000 $165,000 $165,000 Production Costs ($20,000) ($22,000) ($24,000) ($26,000) ($26,000) ($26,000) Depreciation / Amortization ($30,000) ($30,000) ($30,000) ($30,000) ($30,000) ($30,000) Profit Before tax $85,000 $93,000 $101,000 $109,000 $109,000 $109,000 Taxes ($25,500) ($27,900) ($30,300) ($32,700) ($32,700) ($32,700) Profit after tax (Net Income) $59,500 $65,100 $70,700 $76,300 $76,300 $76,300 Projected Balance Sheet 0 1 2 3 4 5 6 Cash and Marketable Sec. $0 $90,175 $185,325 $286,075 $392,425 $498,725 $605,025 Other Current Assets (Inventory and Receivables) $15,000 $17,025 $17,175 $17,325 $17,475 $17,475 $17,475 Fixed Assets At cost $300,000 $300,000 $300,000 $300,000 $300,000 $300,000 $300,000 Accumulated Depreciation / Amortization $0 $30,000 $60,000 $90,000 $120,000 $150,000 $180,000 Net Fixed Assets $300,000 $270,000 $240,000 $210,000 $180,000 $150,000 $120,000 Total Assets $315,000 $377,200 $442,500 $513,400 $589,900 $666,200 $742,500 Current Liabilities (Payables) $0 $2,700 $2,900 $3,100 $3,300 $3,300 $3,300 LT Debt $0 $0 $0 $0 $0 $0 $0 Total Liabilities $0 $2,700 $2,900 $3,100 $3,300 $3,300 $3,300 Stock and accumulated retained earnings $315,000 $374,500 $439,600 $510,300 $586,600 $662,900 $739,200 Total Liabilities and Equity $315,000 $377,200 $442,500 $513,400 $589,900 $666,200 $742,500 Working Capital (Non-Cash Current Assets less Current Liabilities) $15,000 $14,325 $14,275 $14,225 $14,175 $14,175 $14,175 Change in working capital $0 -$675 -$50 -$50 -$50 $0 $0 Projected Free Cash Flows to the Project Net Income $0 $59,500 $65,100 $70,700 $76,300 $76,300 $76,300 Depreciation / Amortization $0 -$30,000 -$30,000 -$30,000 -$30,000 -$30,000 -$30,000 Change in working capital $0 -$675 -$50 -$50 -$50 $0 $0 Capital Expenditures (fixed assets at cost) -$300,000 -$300,000 -$300,000 -$300,000 -$300,000 -$300,000 -$300,000 After tax salvage value (Terminal Value) $0 $0 $0 $0 $0 $0 $84,000 Free Cash Flows -$300,000 -$271,175 -$264,950 -$259,350 -$253,750 -$253,700 -$169,700 NPV -$975,750 Should the company undertake the project? Number of years Payback Analysis (when do cash flows sum positive?) Discounted Payback Analysis