Question

1 domimant retailer is considering a project whose data are shown below. revenue and cash operating expenses are expected to be constant over the roject's 5 year expected operating life annual sales revenue is 90000 and cash operating expense are 37000 per year. the new equipment cost and depeciable basis is 125,000 and it will depreciated but can be sold for 8000. in addition, the new equipment requires an additional 5000 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 10995 at the end of year 5. the marginal tex rate is 28%

-what is year 3 net operating cash flow?
-what is the terminal year non-operating cash flow at the end of year 5?
-what is the NPV of the project if Dominant WACC is 12%

need this in 20 mins

Answer 1

The cash flows are as below

Year	0	1	2	3	4	5
Revenue		90,000	90,000	90,000	90,000	90,000
Expense		37,000	37,000	37,000	37,000	37,000
Depreciation		23,400	23,400	23,400	23,400	23,400
Net Profit before tax		29600	29600	29600	29600	29600
Less Tax		8288	8288	8288	8288	8288
Net Income		21312	21312	21312	21312	21312
Add backDepreciation
OCF		44712	44712	44712	44712	44712
Initial outlay	-125000
Working capital	-5000	0	0	0	0	5000
Salvage after tax						10156.4
Net Cash flow	-130000	44712	44712	44712	44712	59868.4

Year 3 OCF = $44712

Year 5 non operating cash flow = 5000+10156.4 = 15156.40

NPV = $39776.90

WORKINGS