For a new process, the land was purchased for $8 million. The fixed capital inve

Question

For a new process, the land was purchased for $8 million. The fixed capital investment, paid at the end of year 0, is $160 million. The working capital is $20 million, and the salvage value is $10 million. The estimated revenue from years 1 through 10 is $80 million/yr, and the estimated cost of manufacture over the same time period is $30 million/yr. The internal hurdle rate (interest rate) is 10% p.a., before taxes, and the taxation rate is 40%.

a. Draw a discrete, nondiscounted cash flow diagram for this process.

b. Determine the yearly depreciation schedule using the five-year MACRS method.

c. Determine the after-tax profit for each year.

d. Determine the after-tax cash flow for each year.

e. Draw a discrete, discounted (to year 0) cash flow diagram for this process.

f. Draw a cumulative, discounted (to year 0) cash flow diagram for this process.

g. What is the present value (year 0) of this process?

Explanation / Answer

Requirements c and d below

Requirements b below

Requirements a below

RRequirements g below

Requirements g below

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