Question

Large Manufacturing, Inc. is considering investing in some new equipment whose data are shown below. The equipment has a 3-year class life and will be depreciated by the MACRS depreciation system, and it will have a positive pre-tax salvage value at the end of Year 3, when the project will be closed down. Also, some new working capital will be required, but it will be recovered at the end of the project's life. Revenues and cash operating costs are expected to be constant over the project's 3-year life. What is the project's Initial Cash Outlay at time 0? 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.
	WACC											11.0%
	Net investment in fixed assets (depreciable basis)											$70,000
	Required new working capital											$10,000
	Sales revenues, each year											$95,000
	Cash operating costs excl. depr'n, each year											$30,000
	Expected pretax salvage value											$9,000
	Tax rate											30.0%

-Using the information from problem 16 on Large Manufacturing, Inc., what is the Year 1

Net Operating Cash Flow?

-what is the Terminal Year Non–Operating Cash Flow at the end of Year 3?

- what is the project’s NPV?

Answer 1

1: initial cash outlay at time zero = -80000

2: net operating cash flow in Year 1 = 52499.3

3: Terminal Year Non–Operating Cash Flow = 17856.1

4: NPV = $60,401.09

Workings

Salvage
Purchase price	70000
Less: Depreciation	-64813
Closing book value	5187
Selling price	9000
Gain/(loss)	3813
Tax/ Saving	-1143.9
Net salvage	7856.1

OCF		MACRS 3 year
Year	Cash flows	Depreciation	EBIT	Tax	PAT	OCF
1	65000	-23331	41669	-12501	29168.3	52499
2	65000	-31115	33885	-10166	23719.5	54835
3	65000	-10367	54633	-16390	38243.1	48610

Year	Initial cash flow	OCF	Working capital	Salvage	Net cash flows
0	-70000		-10000		-80000
1		$52,499.30			52499.3
2		$54,834.50			54834.5
3		$48,610.10	10000	7856.1	66466.2
				NPV	$60,401.09

AutoSaver HD Book1 - Excel Sign in File Home Insert Draw Page Layout Formulas Data Review View Help Tell me what you want to do -8 A = = 0 Calibri BIU - B A A = E insert - Delete - Format - 0 X Share Comments AY O Sort & Find & Filter - Select Editing General 3$ -% to Number Paste La- - . Conditional Format as Formatting Table - Cell Styles Clipboard Alignment Styles Cells for INPUTS D B C E G H I J м A1 - A 1 INPUTS 2 Initial cost Tax rate 4 Selling price 5 Working capital 6 MARR Annual cash flow Working capital Salvape --B5 70000 0.3 9000 10000 Year Initial cash flow OCF 0 --B2 =117 1-118 3 =119 Net cash flows =SUM(D3:G3) =SUM(D4:04) |-SUMIDS:G5) |-SUM(D6:46) L Salvage Purchase price -B2 Less: Depreciation -SUM(E17:E23) Closing book value - 2+13 0.11 --13 -L10 Selling price Gain/iloso) -B4 =16-14 --L7 B3 NPV -NPV(B6, H4:16)+H3 Tax/ Saving Net salvage = 6+18 15 Year 16 1 Depreciation rate OCE MACRS 3 year 0.3333 Year Cash flows Depreciation 0.4445 1 -95000-30000 -$D$3 B16 0.1481 2 -95000-30000 -SD$3*817 3 -95000 30000 -SD$3*B18 18 3 EBIT Tax PAT -SUMID17:E17) --F17*$B$ 3-F17+G17 -SUM(D18:518) --F18*$B$3 |=F184618 -SUMID 19:F19) - F19 SAS 3-F19+G19 loc -H17-E17 -H18-E18 =H19 F19 20 22 23 Sheet1 Sheet2 Sheet3 Sheet4 Sheets Sheet6 Sheet7 Sheets Sheet9 | Ready