Ingenuity Corporation has been quite successful since its inception three years ago. It is now poised to enter high growth supported by several...
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Ingenuity Corporation has been quite successful since its inception

three years ago. It is now poised to enter high growth supported by several strong project opportunities which the company needs to fund. It must now decide how to fund the projects. The corporate finance department has been charged with evaluating project returns and recommending the best capital structure to fund them. Ingenuity Corp. plans to pursue all three projects being evaluated. Evaluate the returns for each project and determine the best capital structure to support its high growth plans.
Cash Flows:
(dollars in thousands)
Project 1 Project 2 Project 3
Year 0 (30,000) (30,000) (20,000)
Year 1 8,000 500 3,000
Year 2 8,000 20,000 5,000
Year 3 10,000 10,000 12,000
Year 4 10,000 10,000 12,000
Year 5 5,000 2,000 -----


There are no terminal values for the projects.
Current debt is $100 million (at 7%) and current equity is $300 million.
Treasury rate 4%. AAA rated bonds are trading at 7%, company tax rate is 35%, and current levered beta is 1.40.
Company will either fund the projects completely through debt (new bonds at 10% interest), completely through equity (new stock issuance), or will fund half through debt (new bonds at 10% interest) and half through new stock issuance.
If company funds 100% through debt, the new levered beta will be 1.35. if it chooses to fund 100% through equity, the new levered beta will be 1.15, and if it funds 50% through debt and 50% through equity, the new levered beta will be 1.25.


Show via spreadsheet:
Determine Ingenuity's current WACC and its potential WACC under each the three funding scenarios.
Calculate a table showing the NPV, IRR, and Payback metrics for each of the projects utilizing the company WACC for funding scenario. Which funding option should the corporate finance department recommend? Why?


Please show excel formulas

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