Question

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5 of 5(4 complete) HW Score: 75%, 12 of 16 pts P12-22 (similar to) Quesion Help (Related to Checkpoint 12.11 (Comprehensive problem caleulating project cash lows, NPV, PL, and IRR) Trad Wnds Corporation a fim n the 36 percent marginal tax tracket with a reqred ale of relu or dscount ate of 13 pencent comadering new propect This proect involves the introduction of a new product The project is expected to last 5 years and then becaune sa somewhat of a fad product 4 wil be eminaed Gven the folowng mation deleine the fee cash fows assocaled wth the projoct the projects net present value, the proltablty index, and the internal sate of refun Apply the appropate dechion crleria a Determine the roe cash fows associaled wth the propect The FCF n yer 06s Round to the neaest doler)

Answer 1

30% Tax rate Calculation of annual depreciation Total Depreciation Cost Dep Rate Depreciation Year-1 Year-2 Year-3 Year-4 Year-5 $ 14,220,000 $ 14,220,000 $ 14,220,000 $ 14,220,000 $ 14,220,000 20.00% 20.00% 20.00% 20.00% 20.00% $ 2,844,000 $ 2,844,000 $ 2,844,000 $ 2,844,000 $ 2,844,000 $ 14,220,000 $ 14,220,000 $ 14,220,000 Calculation of after-tax salvage value Cost of machine Depreciation WDV Sale price Profit/(Loss) Tax Sale price after-tax Calculation of annual operating cash flow No of units Selling price Operating ost Sale Less: Operating Cost Contribution Year-1 Year-2 Year-3 80,000 110,000 110,000 $ 330 $ 330 $ 330 $ 160 $ 160 $ 160 $ 26,400,000 $ 36,300,000 $ 36,300,000 $ 12,800,000 $ 17,600,000 $ 17,600,000 $ 13,600,000 $ 18,700,000 $ 18,700,000 Year-4 Year-5 90,000 80,000 $ 330 $ 280 $ 160 $ 160 $ 29,700,000 $ 22,400,000 $ 14,400,000 $ 12,800,000 $ 15,300,000 $ 9,600,000 Less: fixed cost Less: Depreciation Profit before tax Tax@30% Profit After Tax Add Depreciation Cash Profit after-tax $ $ $ $ $ $ $ 600,000 $ 600,000 2,844,000 $ 2,844,000 10,156,000 $ 15,256,000 3,046,800 $ 4,576,800 7,109,200 $ 10,679,200 2,844,000 $ 2,844,000 9,953,200 $ 13,523,200 $ 600,000 $ 600,000 $ 2,844,000 $ 2,844,000 $ 15,256,000 $ 11,856,000 $ 4,576,800 $ 3,556,800 $ 10,679,200 $ 8,299,200 $ 2,844,000 $ 2,844,000 $ 13,523,200 $ 11,143,200 $ $ $ $ $ $ $ 600,000 2,844,000 6,156,000 1,846,800 4,309,200 2,844,000 7,153,200

Calculation of working capital movement Working capital-opening Closing working capital Movement $ $ - 190,000 190,000 $ $ $ 190,000 $ 2,376,000 $ 2,186,000 $ 2,376,000 $ 3,267,000 $ 891,000 $ 3,267,000 $ 3,267,000 $ - $ 3,267,000 $ 2,673,000 2,673,000 $ (594,000) $ (2,673,000) Calculation of NPV Year 13.00% Capital Working capita Operating cash Annual Cash flo PV factor Present values $ (14,220,000) $ (190,000) $ (14,410,000) 1.0000 $ (14,410,000) $ (2,186,000) $ 9,953,200 $ 7,767,200 0.8850 $ 6,873,628 $ (891,000) $ 13,523,200 $ 12,632,200 0.7831 $ 9,892,866 - $ 13,523,200 $ 13,523,200 0.6931 $ 9,372,256 $ 594,000 $ 11,143,200 $ 11,737,200 0.6133 $ 7,198,645 $ 2,673,000 $ 7,153,200 $ 9,826,200 0.5428 $ 5,333,268 Net Present Value $ 24,260,662 Calculation of Profitability index (PI) PI= Sum of PV of cashinflows/Outflows PI= 38670662.06/14410000 PI= 2.68

Calculation of IRR Year O 66.00% 67.00% PV factor @ PV factor @ Total cash flow 66% Present values 67% Present values $ (14,410,000) 1.000 $ (14,410,000) 1.000! $ (14,410,000) $ 7,767,200 0.602 $ 4,679,036 0.599 $ 4,651,018 $ 12,632,200 0.363 $ 4,584,192 0.359 $ 4,529,456 $ 13,523,200 0.219 $ 2,956,346 0.215 $ 2,903,555 $ 11,737,200 0.132 $ 1,545,725 0.129 $ 1,509,033 $ 9,826,200 0.079 $ 779,552 0.077 $ 756,490 nM+in $ 134,851 (60,448) IRR IRR =Lower rate + Difference in rates* (NPV at lower rate)/(Lower rate NPV-Higher rate NPV) '=66%+ (67%-66%)*(134850./(134850.-(-60448.) 66.690%