Question

A new line of sneakers is expected to sell 8000 pairs a year at $102 each. The new line is expected to have a 4 year life. It requires labor costs of $30.50 and material costs of $24.72 per pair. Fixed costs per year is $74,040. New equipment for production is needed, and requires an investment of $950,000. This equipment will be depreciated straight-line to zero over the life of the project, after which time it will have a market value of $380,000. The project requires an initial investment in net working capital of $43,000. The tax rate is 21 percent and the required return for the project is 15%.

d. Fill out the table below. Do not include dollar signs in your answers ($).

Clearly write negative numbers with a negative - sign, but no + sign for positive numbers.

	Year 0	Year 1	Year 2	Year 3	Year 4
OCF
Change in NWC
Capital spending
Total cash flow

Answer 1

: r fir E36 A X C --L35/4 E B D F G H I J K L M Sale 34 Year units Contrib ution Fixed per unit costs Depreciati on PBT Tax@21% PAT Depreciat ion OCF 0 L 1 37 38 39 40 8,000 $ 46.78 2 8,000 $ 46.78 3 8,000 $ 46.78 4 8,000 $ 46.78 74,040 74,040 74,040 74,040 237,500 62,700 237,500 62,700 237,500 62,700 237,500 62,700 13,167 49,533 237,500 13,167 49,533 237,500 13,167 49,533 237,500 13,167 49,533 237,500 Change Capital Total cash in NWC spending flow -$43,000 $950,000-$993,000 $287,033 $287,033 $287,033 43,000 300,200 $630,233 =380000*(1-21%) 287,033 287,033 287,033 287,033

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