Question

FCF for Year 0, 1, 2, 3, 4 and 5

NPV?

PI?

IRR?

(Related to Checkpoint 12.1) (Comprehensive problem-calculating project cash flows, NPV, PI, and IRR) Traid Winds Corporation, a firm in the 31 percent marginal tax bracket with a required rate of return or discount rate of 11 percent, is considering a new project. This project involves the introduction of a new product. The project is expected to last 5 years and then, because this is somewhat of a fad product, it will be terminated. Given the following information ! determine the free cash flows associated with the project, the project's net present value, the profitability index, and the internal rate of return. Apply the appropriate decision criteria. a. Determine the free cash flows associated with the project.

Answer 1

Solution :-

for L18 А 1 Solution :-(A) в ($14,980,000) 3 Year 4 Initial Investment 5 Units Sold 6 Sales Price Per Unit 7 Annual Revenues 8 Less :- Var Cost @ 120 p.u 9 Les :- Fixed Cost 10 Less :- Dep Amount 11 Earnings 12 Less :- Tax @31% 13 Earning after tax 14 Add :- Dep Amount 15 Working Capital Invested 16 Working Capital Recovery 17 Cashflow after tax 18 PVF @ 11% 19 PV of Cash Flows 75000 $320 $24,000,000 $9,000,000 $750,000 $2,996,000 $11,254,000 $3,488,740 $7,765,260 $2,996,000 ($2,930,000) 110000 $320 $35,200,000 $13,200,000 $750,000 $2,996,000 $18,254,000 $5,658,740 $12,595,260 $2,996,000 ($1,456,000) 110000 $320 $35,200,000 $13,200,000 $750,000 $2,996,000 $18,254,000 $5,658,740 $12,595,260 $2,996,000 85000 $320 $27,200,000 $10,200,000 $750,000 $2,996,000 $13,254,000 $4,108,740 $9,145,260 $2,996,000 75000 $270 $20,250,000 $9,000,000 $750,000 $2,996,000 $7,504,000 $2,326,240 $5,177,760 $2,996,000 ($190,000) $0 ($15,170,000) 1.000 ($15,170,000) $7,831,260 0.901 7055189.189 $14,135,260 0.812 11472494.12 $15,591,260 0.731 11400194.94 $1,040,000 $13,181,260 0.659 8682904.24 $3,536,000 $11,709,760 0.593 6949172.623 20 21 NPV = Sum of Present Value of Cash flows 27 $30,389,955

H14 A B C D E F 1 (b) w N Year Cashflows ($15,170,000) $7,831,260 $14,135,260 $15,591,260 $13,181,260 $11,709,760 CO IRR 69.53% IRR(B4:39) 12 = 14 (C) 15 PI = Profitability Index 16 17 18 PVCI / PVCO 45,559,955.1 / 15,170,000 3.003 times

Working Note of Calcualtion of Working Capital Investment and recovery

5 22 23 Working Note to Calculate working Capital Requirement 24 Year 25 Sales Units 75000 26 Selling Price $320 27 Sales Value $24,000,000 28 Working Capital Required $190,000 $3,120,000 29 Working Capital Invested $2,930,000 30 Working Capital Recovery 31 2 110000 $320 $35,200,000 $4,576,000 $1,456,000 110000 $320 $35,200,000 $4,576,000 $0 85000 $320 $27,200,000 $3,536,000 75000 $270 $20,250,000 $2,632,500 $1,040,000 $3,536,000