A firm is considering an investment in a project with a life of 5 years. The ini
ID: 2718576 • Letter: A
Question
A firm is considering an investment in a project with a life of 5 years. The initial investment consists of $200,000 in plant and equipment and $50,000 in working capital. The project is expected to generate revenues of $300,000 a year with a gross margin of 50%. Assume that the fixed expenses consist of depreciation (use straight line to zero as your method) and SGA of $25,000. Taxes are 30%. Salvage (recovery of the investment in plant and equipment) is $40,000. The discount rate is 10%. Please fill in the following table.
0
1
2
3
4
5
Net Income (NOPAT)
Operating CF
Investing CF
(TOTAL) CF
NPV
0
1
2
3
4
5
Net Income (NOPAT)
Operating CF
Investing CF
(TOTAL) CF
NPV
Explanation / Answer
Answer
NOPAT = 65100 (same in every year)
Add: Dep = 40000
Operating cash flow = 105100 (same in all year)
Investing Cash Flows = (250000) at o period
At year 5 = 40000
Revenue = 300000 Less: COGS = 150000 Operating Profit = 150000 Less: Depreciation = 32000 (200000 - 40000 / 5) Less: SGA = 25000 Net Operating Profit = 93000 Tax = 27900 NOPAT = 65100 (same in every year)Related Questions
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