Question

Project cash flow and NPV.  The managers of Classic Autos Incorporated plan to manufacture classic Thunderbirds​ (1957 replicas). The necessary foundry equipment will cost a total of ​$4,000,000 and will be depreciated using a​ five-year MACRS​ life, LOADING... . The sales manager has an estimate for the sale of the classic Thunderbirds. The annual sales volume will be as​ follows: Year​ one:  260 Year​ four:  370 Year​ two:  270 Year​ five:  330 Year​ three:  330 If the sales price is ​$28,000 per​ car, variable costs are ​$20,000 per​ car, and fixed costs are ​$1,100,000 ​annually, what is the annual operating cash flow if the tax rate is 30​%? The equipment is sold for salvage for ​$500,000 at the end of year five. Net working capital increases by ​$500,000 at the beginning of the project​ (year 0) and is reduced back to its original level in the final year. Find the internal rate of return for the project using the incremental cash flows.

Answer 1