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In: Finance

CRAMD has the following revenue and lost estimates for the next two years: sales = 4...

CRAMD has the following revenue and lost estimates for the next two years:

sales = 4 million units/year for (two years)
-per unit price=$22, per unit cost= $16 up front
R&D= 8 million Up front New Equipment= 20 million expected life of the new equipment is 2 years. Annual overhead= 1.6 million (for 2 years). Assume there is no need to make an investment in working capital and that this projext ia one project among many projects that CRAMD is undertaking and that CRAMD regularly makes large profita each year. Tax rate: marginal rate of 40%

use that above infor to create an income statment that shows net income for current year and next two years. Calculate your free cashflow for for 2 years 0-2. calculate the NPV of this potential investment if appropriate cost of capital is 12%. Depricciate the equipment equally over the equipments life span.

free cash flow for year 2?

a. 7.44 million
b 15.65 mil
c 4.67 mil
d. 4.8 mil
e. 24.8 mil
f. 12.88 mil
g 2.89 mil
h3.25 mil
i. 17.44 mil
j -20 mil

Solutions

Expert Solution

INCOME STATEMENT (All Values in $)
YEAR 0 1 2
Investment -20000000
R&D -8000000
Sales 88000000 88000000
Cost -64000000 -64000000
Overhead -1600000 -1600000
Gross 22400000 22400000
Tax @ 40% -8960000 -8960000
Depreciation(tax gain) 4000000 4000000
Net income -28000000 17440000 17440000
Present value factor 1 0.892857 0.797194
PVF -28000000 15571429 13903061
NPV 1474490

The Net income and NPV are shown in the above table.

The free cash flow for year 2 is $ 17.44 million (option i)

jeff jeffy answered 3 years ago
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