Question

NPV. Miglietti Restaurants is looking at a project with the following forecasted sales: first-year sales quantity of 30,000, with an annual growth rate of 4.00% over the next ten years. The sales price per unit will start at $45.00 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 $2,100,000 It will be depreciated using MACRS, and has a seven-year MACRS life classification. Fixed costs will be $340,000 per year. Miglietti Restaurants has a tax rate of 30%. 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 9%. What is the operating cash flow for this project in year 1? $ (Round to the nearest dollar.)

Answer 1

Miglietti	0	1	2	3	4	5	6	7	8	9	10
Quantity		30,000	31,200	32,448	33,746	35,096	36,500	37,960	39,478	41,057	42,699
Price		$         45.00	$         45.90	$         46.82	$         47.75	$         48.71	$            49.68	$         50.68	$         51.69	$         52.72	$         53.78
MACRS %		14.29%	24.49%	17.49%	12.49%	8.93%	8.93%	8.93%	4.45%
Investment	$ (2,100,000)
Salvage											$     140,000
Sales		$ 1,350,000	$ 1,432,080	$ 1,519,150	$ 1,611,515	$ 1,709,495	$    1,813,432	$ 1,923,689	$ 2,040,649	$ 2,164,721	$ 2,296,336
VC		$    (742,500)	$    (787,644)	$    (835,533)	$    (886,333)	$    (940,222)	$      (997,388)	$(1,058,029)	$(1,122,357)	$(1,190,596)	$(1,262,985)
FC		$    (340,000)	$    (340,000)	$    (340,000)	$    (340,000)	$    (340,000)	$      (340,000)	$    (340,000)	$    (340,000)	$    (340,000)	$    (340,000)
Depreciation		$    (300,090)	$    (514,290)	$    (367,290)	$    (262,290)	$    (187,530)	$      (187,530)	$    (187,530)	$      (93,450)	$                -	$                -
EBT		$      (32,590)	$    (209,854)	$      (23,672)	$     122,892	$     241,743	$        288,514	$     338,130	$     484,842	$     634,124	$     693,351
Tax (30%)		$          9,777	$       62,956	$          7,102	$      (36,867)	$      (72,523)	$        (86,554)	$    (101,439)	$    (145,453)	$    (190,237)	$    (208,005)
Profits		$      (22,813)	$    (146,898)	$      (16,571)	$       86,024	$     169,220	$        201,960	$     236,691	$     339,389	$     443,887	$     485,346
Cash Flows	$ (2,100,000)	$     277,277	$     367,392	$     350,719	$     348,314	$     356,750	$        389,490	$     424,221	$     432,839	$     443,887	$     583,346
NPV	$ 600,030.69

Depreciation = MACRS % x Investment

Operating Cash Flows (OCF) = Profits + Depreciation

Cash Flows = OCF + Investment + Salvage x (1 - tax rate)