Question

NPV. Miglietti Restaurants is looking at a project with the following forecasted sales: first-year sales quantity of 36,000. with an annual growth rate of 4.00% over the next ten years. The sales price per unit will start at $13.00 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 $330,000 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 $130,000 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 17 i X - Data Table S (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 3-Year 33,33% 44.45% 14.81% 7.41% 5-Year 20.00% 32.00% 19.20% 11.524 11.526 5.76% 7-Year 14 29% 24.49% 17.49% 12.499 5.9395 8.9396 8.93% 10-Year 10.00% 18.00% 14.40% 11.52 9.225 7.3796 6.86% 5.5596 8.5595 G.5546 3.28% 4,4596 BON Print Dane

Answer 1

Equipment Cost Fixed Cost - per year Tax Rate Cost of Capital Equipment Sold (at end of year 10) First year Sales Qty Annual Growth in sales qty First year Sales Price per unit Annual Growth in sales Price $21,00,000 $3,30,000 30% 9% $1,30,000 36,000 4% $43.00 2% Step 1: Calculate Operating Cash flow for each Year :- Year-10 Year-1 36,000 Given Sales Qty Growth rate = Year-2 37,440 =36000*1.04 Year-3 38,938 =37440*1.04 Year-4 40,495 =38938*1.04 Year-5 42,115 -40495*1.04 Year-6 43,800 -42115*1.04 Year-7 45,551 -43800*1.04 Year-8 47,374 -45551*1.04 Year-9 49,268 -47374*1.04 51,239 4% -49268*1.04 $43.00 $43.86 $51.39 Sales Price per unit Growth rate = $44.74 =$43.86*1.02 $45.63 $44.74*1.02 $46.54 =$45.63*1.02 $47.48 $46.54*1.02 $48.42 =$47.48*1.02 $49.39 =$48.42*1.02 $50.38 $49.39*1.02 2% Given =$43*1.02 =$50.38*1.02 (Sales Qty * Sales Price Per Unit) (Sales Value * 55%) Sales Value Production Cost 55% Fixed Cost Depreciation $24,82,213 $13,65,217 $3,30,000 $26,33,132 $14,48,222 $3,30,000 $15,48,000 $8,51,400 $3,30,000 14.29% $3,00,090 $66,510 $19,953 $46,557 $3,00,090 $3,46,647 (As Mention in question 7 year MACARS classification) (Equipment cost * Depreciation rate for that year) (Sales - Production Cost - Fixed cost - Depreciation) (EBIT * Tax Rate) (EAT - Tax) Because Depreciation is non Cash expenses EAT+Depreciation $16,42,118 $9,03,165 $3,30,000 24.49% $5,14,290 -$1,05,337 -$31,601 -$73,736 $5,14,290 $4,40,554 $17,41,959 $9,58,078 $3,30,000 17.49% $3,67,290 $86,592 $25,977 $60,614 $3,67,290 $4,27,904 $18,47,870 $10,16,329 $3,30,000 12.49% $2,62,290 $2,39,252 $71,775 $1,67,476 $2,62,290 $4,29,766 $19,60,221 $10,78,121 $3,30,000 8.93% $1,87,530 $3,64,569 $1,09,371 $2,55,199 $1,87,530 $4,42,729 $20,79,402 $11,43,671 $3,30,000 8.93% $1,87,530 $4,18,201 $1,25,460 $2,92,741 $1,87,530 $4,80,271 EBT (Earning before Tax) Tax @ 30% EAT (Earning after Tax) Add :- Depreciation Operating Cash Flow $22,05,830 $12,13,206 $3,30,000 8.93% $1,87,530 $4,75,093 $1,42,528 $3,32,565 $1,87,530 $5,20,095 $23,39,944 $12,86,969 $3,30,000 4.45% $93,450 $6,29,525 $1,88,857 $4,40,667 $93,450 $5,34,117 $0 $7,86,996 $2,36,099 $5,50,897 $0 $8,54,909 $2,56,473 $5,98,436 SO $5,50,897 $5,98,436 Step 2: Calculate Cash flow of the project at disposal ( at the end of 10 year):- Equipment Sold at the end of 10 year Less :- Tax @ 30% =$130000*30% After Tax Cash Flow =$130000-$39000 $1,30,000 $39,000 $91,000 Step 3: NPV of Project :- =Present value of Inflow per year Total of present Value (total of above row) Initial cash outflow for Equipment (as given question) Present value of Inflow - Initial cash outflow =$2995260-$2100000 =$346647/(1.09)^1 =$440554/(1.09)^2 =$427904/(1.09)^3 =$429766/(1.09)^4 =$442729/(1.09)^5 =$480271/(1.09)^6 =$520095/(1.09)^7 =$534117/(1.09)^8 =$550897/(1.09)^9 =($598436+$91000)/(1.09) 10 $3,18,025 $3,70,806 $3,30,421 $3,04,457 $2,87,743 $2,86,370 $2,84,510 $2,68,056 $2,53,648 $2,91,225 $29,95,260 $21,00,000 NPV = NPV = $8,95,260