Question

NPV.  Miglietti Restaurants is looking at a project with the following forecasted​ sales: ​ first-year sales quantity of 33,000​, with an annual growth rate of 4.00​% over the next ten years. The sales price per unit will start at ​$40.00 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 500 comma 0002,500,000. It will be depreciated using​ MACRS, LOADING... ​, and has a​ seven-year MACRS life classification. Fixed costs will be ​$350,000 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 ​$140,000 at the end of the​ ten-year project and the cost of capital for this project is 99​%.

Answer 1

Year	1	2	3	4	5	6	7	8	9	10
selling units = year 1 sales units*(1+growth rate)^n	33000	34320	35692.8	37120.512	38605.33	40149.54578	41755.52761	43425.75	45162.78	46969.29
selling price = year 1 price*(1+growth rate)^n	40	40.8	41.616	42.44832	43.29729	44.16323213	45.04649677	45.94743	46.86638	47.8037
Initial Investment	-2500000
sales revenue = units sold*selling price		1320000	1400256	1485391.565	1575703	1671506.137	1773133.71	1880940	1995301	2116616	2245306
cost of production=55% of sales revenue		726000	770140.8	816965.3606	866636.9	919328.3753	975223.5405	1034517	1097416	1164139	1234918
fixed cost		350000	350000	350000	350000	350000	350000	350000	350000	350000	350000
less depreciation		357250	612250	437250	312250	223250	223000	223250	111500	0	0
operating profit		-113250	-332134.8	-118823.7958	46816.52	178927.7616	224910.1695	273173.1	436385.6	602477.1	660387.7
after tax profit = operating profit*(1-tax rate) tax rate = 38%		-70215	-205923.6	-73670.75342	29026.24	110935.2122	139444.3051	169367.3	270559.1	373535.8	409440.4
after tax cash flow from sale of equipment = selling price*(1-tax rate)		0	0	0	0	0	0	0	0	0	86800
net operating cash flow = after tax profit+ annual depreciation+ after tax cash flow from sale of equipment	-2500000	287035	406326.42	363579.2466	341276.2	334185.2122	362444.3051	392617.3	382059.1	373535.8	496240.4
present value of net operating cash flow = net operating cash flow/(1+r)^n r = 9%	-2500000	263334.86	341996.82	280749.8879	241768.7	217197.4583	216113.697	214775.1	191742.6	171986.3	209617.3
net present value = sum of present value of net operating income	-150717.3
Year	1	2	3	4	5	6	7	8	9	10
cost of machine	2500000	2500000	2500000	2500000	2500000	2500000	2500000	2500000	2500000	2500000
Macrs rate	14.29%	24.49%	17.49%	12.49%	8.93%	8.92%	8.93%	4.46%
annual depreciation	357250	612250	437250	312250	223250	223000	223250	111500	0	0