Question

Please answer within 20 mins.

Your company, Dominant Retailer, Inc., is considering a project whose data are shown below. Revenue and cash operating expenses are expected to be constant over the project's 5 year expected operating life; annual sales revenue is $99,000.00 and cash operating expenses are $49,750.00. The new equipment's cost and depreciable basis is $150,000.00 and it will be depreciated by MACRS as 5 year property. The new equipment replaces older equipment that is fully depreciated but can be sold for $7,000. In addition, the new equipment requires an additional $5,000 of net operating working capital, which can be fully recovered at the end of the project. The new equipment is expected to be sold for $9,995 at the end of the project in year 5. The marginal tax rate is 20.00%. What is the project's Initial Cash Outlay at Year 0?  Note:  Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

2. Using the information from problem 1 on Dominant Retailer, Inc., what is the Year 5 Net Operating Cash Flow? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

3. Using the information from problem 1 on Dominant Retailer, Inc., what is the Terminal Year Non–Operating Cash Flow at the end of Year 5? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

4. Using the information from problem 1 on Dominant Retailer, Inc., what is the NPV of the Project if Dominant Retailer’s WACC is 15.75%? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

Answer 1

The project's Initial Cash Outlay at Year 0 is 148000.00 considering the sale of old machine.

2. The Year 5 Net Operating Cash Flow is 49250.00

3. The Terminal Year Non–Operating Cash Flow at the end of Year 5 is 8330.00 (57580.00-49250.00)

4. The NPV of the Project is 7291.44