Year 1 Year 2 Year 3 Year 4 Year 5 Units Sales 75,000 95,000...

	Year 1	Year 2	Year 3	Year 4	Year 5
Units Sales	75,000	95,000	125,000	130,000	140,000

Equipment Cost	61,000,000
Salvage value

Units Price	650
Variable cost (per unit)	300
Fixed costs (per year)	4,300,000

Tax rate	35%
NWC (% of sales)	15%
Required return	12%
Required Payback Period (years)	3

MACRS Schedule	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8
3-year	33.33%	44.45%	14.81%	7.41%
5- year	20.00%	32.00%	19.20%	11.52%	11.52%	5.76%
7-year	14.29%	24.49%	17.49%	12.49%	8.93%	8.92%	8.93%	4.46%

Shelley believes that the unit sales, variable costs and equipment cost projections are accurate to ±20%.
Questions:
Please show working.

Pro Forma Income Statements
Year		Year 1	Year 2	Year 3	Year 4	Year 5
Revenues
Variable costs
Fixed costs
Depreciation
EBIT
Taxes (35%)
Net income
OCF


Net Working Capital
Year	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Initial NWC
Ending NWC
NWC cash flow

Salvage Value
Market value of salvage
Book value of salvage
Taxes on sale:
Aftertax salvage value:

Project Cash Flows
Year	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
OCF
Change in NWC
Capital spending
Total cash flow
Cumulative cash flow




Question 1	Value	Decision
Payback Period
Question 2
NPV
Question 3
IRR
Question 4
Profitability Index
Question 5
Target Sales Price

Expert Solution

Functions

jeff jeffy answered 3 years ago

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