Question

NPV.  Miglietti Restaurants is looking at a project with the following forecasted​ sales: ​ first-year sales quantity of 33,000​, with an annual growth rate of 4.00​% over the next ten years. The sales price per unit will start at ​$43.00 and will grow at 2.00% per year. The production costs are expected to be 55​% of the current​ year's sales price. The manufacturing equipment to aid this project will have a total cost​ (including installation) of $2,300,000. It will be depreciated using​ MACRS​, and has a​ seven-year MACRS life classification. Fixed costs will be ​$360,000 per year. Miglietti Restaurants has a tax rate of 35​%. What is the operating cash flow for this project over these ten​ years? Find the NPV of the project for Miglietti Restaurants if the manufacturing equipment can be sold for ​$160,000 at the end of the​ ten-year project and the cost of capital for this project is 8​%.

What is the operating cash flow for this project in year​ 1?​ (Round to the nearest​ dollar.)

What is the operating cash flow for this project in year​ 2?  ​(Round to the nearest​ dollar.)

What is the operating cash flow for this project in year​ 3?  ​(Round to the nearest​ dollar.)

What is the operating cash flow for this project in year​ 4? ​(Round to the nearest​ dollar.)

What is the operating cash flow for this project in year​ 5? ​(Round to the nearest​ dollar.)

What is the operating cash flow for this project in year​ 6? ​(Round to the nearest​ dollar.)

What is the operating cash flow for this project in year​ 7? ​(Round to the nearest​ dollar.)

What is the operating cash flow for this project in year​ 8?​(Round to the nearest​ dollar.)

What is the operating cash flow for this project in year​ 9? ​(Round to the nearest​ dollar.)

What is the operating cash flow for this project in year​ 10?​(Round to the nearest​ dollar.)

What is the​ after-tax cash flow of the project at​ disposal? ​(Round to the nearest​ dollar.)

What is the NPV of the​ project? ​(Round to the nearest​ dollar)

Data Table

MACRS Fixed Annual Expense Percentages by Recovery Class     

Year	​3-Year	​5-Year	​7-Year	​10-Year
1	​33.33%	​20.00%	​14.29%	​10.00%
2	​44.45%	​32.00%	​24.49%	​18.00%
3	​14.81%	​19.20%	​17.49%	​14.40%
4	​ 7.41%	​11.52%	​12.49%	​11.52%
5		​11.52%	​8.93%	​9.22%
6		​ 5.76%	​8.93%	​7.37%
7			​8.93%	​6.55%
8			​4.45%	​6.55%
9				​6.55%
10				​6.55%
11				​3.28%

Answer 1

Operating cash flow (OCF) each year = income after tax + depreciation

profit on sale of equipment at end of year 10 = sale price - book value

book value is zero as the equipment is fully depreciated

after-tax salvage value = salvage value - tax on profit sale of equipment

NPV is calculated using NPV function in Excel

NPV is $344,547