Question

Project cash flow and NPV.  The managers of Classic Autos Incorporated plan to manufacture classic Thunderbirds​ (1957 replicas). The necessary foundry equipment will cost a total of​$4,100,000 and will be depreciated using a​ five-year MACRS​ life, LOADING... . The sales manager has an estimate for the sale of the classic Thunderbirds. The annual sales volume will be as​ follows: Year​ one:  250 Year​ four:  360 Year​ two:  280 Year​ five:  300 Year​ three:  340 If the sales price is ​$28,000 per​ car, variable costs are ​$19,000 per​ car, and fixed costs are ​$1,200,000 ​annually, what is the annual operating cash flow if the tax rate is 30​%? The equipment is sold for salvage for ​$500,000 at the end of year five. Net working capital increases by ​$500,000 at the beginning of the project​ (year 0) and is reduced back to its original level in the final year. Find the internal rate of return for the project using the incremental cash flows.

Answer 1

J к 1 n n N9 fi =IRR(N2:N7) А в C E F G H Contributi Annual Sale on per Depreciatio Depreciatio operating Year units unit Fixed costs PBT Tax@30% PAT cash flow 2 0 3 1 250 $ 9,000 $ 1,200,000 $ 820,000 $ 230,000 $ 69,000 $ 161,000$ 820,000 $ 981,000 4 2 280 $ 9,000 $ 1,200,000 $1,312,000 $ 8,000 $ 2,400 $ 5,600 $1,312,000 $ 1,317,600 5 3 340 $ 9,000 $1,200,000 $ 787,200 $1,072,800 $ 321,840 $ 750,960 $ 787,200 $ 1,538,160 6 360 $ 9,000 $ 1,200,000 $ 472,320 $1,567,680 $ 470,304 $ 1,097,376 $ 472,320 $ 1,569,696 7 5 300 $ 9,000 $ 1,200,000 $ 472,320 $1,027,680 $ 308,304 $ 719,376 $ 472,320 $ 1,191,696 8 Change in Capital Incremental NWC spending cash flows (500,000) (4,100,000) (4,600,000) 981,000 1,317,600 1,538,160 1,569,696 500,000 420,848 2,112,544 4 9 IRR 16.69% 11 12 13 14 15 16 17 Asset cost Less: Depreciation charged WDV of machine at sale Sale value of machine Profit/(Loss) on sale Less:Tax@30% Salvage value from disposal $4,100,000 $3,863,840 $ 236,160 $ 500,000 $ 263,840 $ 79,152 $ 420,848

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