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, S, 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? $ 277,277 (Round to the nearest dollar.) What is the operating cash flow for this project in year 2? $367,392 (Round to the nearest dollar.) i Data Table What is the operating cash flow for this project in year 3? $ 347719 (Round to the nearest dollar.) MACRS Fixed Annual Expense Percentages by Recovery Class Click on this icon to download the data from this table Year 2 Year 33.33% 44.45% 14.81% 7.41% 5 Year 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% 7-Year 14.29% 24.49% 17.49% 12.49% 8.93% 8.93% 8.93% 4.45% 10-Year 10.00% 18.00% 14.40% 11.52% 9.22% 7.37% 6.55% 6.55% 6.55% 6.55% 3.28% Print Done

Answer 1

Sales Quantity Sale price Sales Less: Production costs Less: Fixed Cost Cash flow before tax Tax @30% Cash flow after tax Add: Tax Shield on depreciation Net Operating Cash flow Operating Cash flow after tax Conditions given Year 1 Increase 4% per year 30,000 Increase 2% per year 45.00 1,350,000 55% of sales 742,500 340,000 267,500 80,250 187,250 90,027 277,277 Year 2 31,200 45.90 1,432,080 787,644 340,000 304,436 91,331 213,105 154,287 367,392 Year 3 32,448 46.82 1,519,150 835,533 340,000 343,618 103,085 240,532 110,187 350,719

Year 1 Year 2 Year 3 Depreciation schedule (refer 7 year MACRS) Cost MACRS Depreciation 2,100,000 14.29% 300,090 2,100,000 24.49% 514,290 2,100,000 17.49% 367,290 Tax Shield 90027 154287 110187 | Tax Shield Depreciation * Tax Rate