Question

Sensys AB is considering a new capital budgeting project that will last for three years. Sensys plans on using a cost of capital of 3% to evaluate this project. Sensys has also capital expenditures of 90,000 which will be depreciated straight-line over 3 years. Based on extensive research, it has prepared the following incremental cash flow projections:

Year	0	1	2	3
Sales (Revenues)		100,000	100,000	100,000
- Cost of Goods Sold (50% of Sales)		50,000	50,000	50,000
- Depreciation		30,000	30,000	30,000
= EBIT		20,000	20,000	20,000
- Taxes (35%)		7,000	7,000	7,000
= unlevered net income		13,000	13,000	13,000

The project requires an increase of working capital by 3,000 in year 1 and a further increase of working capital by 3,000 in year 2. The entire working capital will be recovered in year 3.

a. The free cash flow for the first year of Sensys' project is . (round to full number, if negativ use -, don't enter , as thousand separator)

b. The free cash flow for the last year of Sensys' project is . (round to full number, if negativ use -, don't enter , as thousand separator)

c. The NPV for Sensys' project is . (round to full number, if negativ use -, don't enter , as thousand separator)

d. The IRR of Sensys' project is %. (round to two decimals)

Answer 1

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Answer:

А yearo year 1 Year 2 Year 3 Total 55 Unlevered Net income $13,000 $13,000 $13,000 56 (+) Amortization/Depreciation $30,000 $30,000 $30,000 57 (-) Changes in Working Capital $3,000 $3,000 ($6,000) 58 (-) Capital Expenditure 59 Free Cash Flow $40,000 $40,000 $49,000 60 Capital Expenditure ($90,000) 61 Total Cash Flow ($90,000) $40,000 $40,000 $49,000 62 Present Value @5% 1 0.952380952 0.90702948 0.863837599 63 Present Value ($90,000) $38,095.24 $36,281 $42,328 $26,704 64 a) The free cash flow for the first year of sensy's project is $40,000 65 b) The free cash flow for the last year of sensy's proiect is $49.000 66 C) The NPV for sensy's project is $26,704 Function Arguments 67 d) IRR (IRR(B61:E61) 19.635% IRR Values B61:E611 = {-90000 40000 40000,49000} Guess = number = 0.196345775 Returns the internal rate of return for a series of cash flows. Values is an array or a reference to cells that contain numbers for which you want to calculate the internal rate of return. Formula result = 19.635% Sheet1 Sheet2 Help on this function OK | Cancel