Question

NPV.  Miglietti Restaurants is looking at a project with the following forecasted​ sales: ​ first-year sales quantity of 30 comma 000​, with an annual growth rate of 4.00​% over the next ten years. The sales price per unit will start at ​$44.00 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 comma 100 comma 000. It will be depreciated using​ MACRS, LOADING...​, and has a​ seven-year MACRS life classification. Fixed costs will be ​$330 comma 000 per year. Miglietti Restaurants has a tax rate of 38​%. 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 ​$150 comma 000 at the end of the​ ten-year project and the cost of capital for this project is 7​%. What is the operating cash flow for this project in year​ 1?

Answer 1

Year	1	2	3	4	5	6	7	8	9	10
selling units = year 1 sales units*(1+growth rate)^n	30000	31200	32448	33745.92	35095.7568	36499.59	37959.5706	39477.95	41057.07	42699.35
selling price = year 1 price*(1+growth rate)^n	44	44.88	45.7776	46.693152	47.62701504	48.57956	49.5511464	50.54217	51.55301	52.58407
Initial Investment	-2100000
sales revenue = units sold*selling price		1320000	1400256	1485391.6	1575703.372	1671506	1773133.71	1880940	1995301	2116616	2245306
cost of production=55% of sales revenue		726000	770140.8	816965.36	866636.8546	919328.4	975223.541	1034517	1097416	1164139	1234918
fixed cost		330000	330000	330000	330000	330000	330000	330000	330000	330000	330000
less depreciation		300090	514290	367290	262290	187530	187320	187530	93660	0	0
operating profit		-36090	-214174.8	-28863.8	116776.5174	234647.8	280590.17	328893.1	474225.6	622477.1	680387.7
after tax profit = operating profit*(1-tax rate) tax rate = 38%		-13714.2	-81386.42	-10968.24	44375.0766	89166.15	106624.264	124979.4	180205.7	236541.3	258547.3
after tax cash flow from sale of equipment											93000
net operating cash flow = after tax profit+ annual depreciation+ after tax cash flow from sale of equipment	-2100000	286375.8	432903.58	356321.76	306665.0766	276696.1	293944.264	312509.4	273865.7	236541.3	351547.3
present value of net operating cash flow = net operating cash flow/(1+r)^n r = 7%	-2100000	267640.93	378114.75	290864.69	233953.3186	197280.5	195867.475	194615.1	159392.4	128662.8	178708.8
net present value = sum of present value of net operating income	125100.8
operating cash flow for year 1	286375.8
Year	1	2	3	4	5	6	7	8	9	10
cost of machine	2100000	2100000	2100000	2100000	2100000	2100000	2100000	2100000	2100000	2100000
Macrs rate	14.29%	24.49%	17.49%	12.49%	8.93%	8.92%	8.93%	4.46%
annual depreciation	300090	514290	367290	262290	187530	187320	187530	93660	0	0