Read all parts (a, b, c, d) first. (Show your calculations in an excel spreadshe

Question

Read all parts (a, b, c, d) first. (Show your calculations in an excel spreadsheet)

            a. What is the initial net cash flow (t=0) for the project?

            b. What are the operating cash flows for time periods 1 through 6?

                 c. What is the total terminal cash flow for the project, recognizing the sale of the equipment and the liquidation of NOWC? (NOT the operating cash flows you found in b.)

            d. On the timeline table below, show the total cash flow amount for each period .

           

Period

0

1

2

3

4

5

6

Cash Flow

Period

0

1

2

3

4

5

6

Cash Flow

1 Installation cost $2,107,000.00 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 $242,726.40 $242,726.40 $1,685,600.00 $1,011,360.00 $606,816.00$364,089.60 $121,363.20 $421,400.00 $674,240.00$404,544.00 3 Depreciation 4 Net book value at year end 7 Cashflow 8 Incremental sales 9 Operating cost 10 Less: Depreciation 11 Profit from salvage value 12 PBT 13 Less: Tax@40% 14 PAT 15 Add: Depreciation 16 Less: Working capital 17 Less: Capital investment 18 Incremental free cashflow $2,336,500.00$463,760.00$884,696.00$961,317.60$859,690.56$1,196,222.64 19 Discount rate 20 NPV Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 1,200,000.00$2,500,000.00 $3,2500.00 $3,100,000.00$1,575,000.00 $708,000.00 $1,4750.0 $1,917,500.00$1,829,000.00$929,250.00 $421,400.00 $674,240.00$404,544.00$242,726.40 $242,726.40 $803,636.80 $70,600.00$350,70.00$927,956.00 $1,028,273.60$1,206,660.40 $28,240.00 $140.0 $371,182.40$411,309.44 $482,664.16 S42,360.00$210,456.00 $556,773.60$616,964.16 $723,996.24 $421,400.00 $674,240.00$404,544.00 $242,726.40 $242,726.40 $229,500.00 $229,500.00 $2,107,000.00 8.8% $986,535.40

Explanation / Answer

a) Initial Cash Flow = - (Capital Investment + Investment in Working Cpaital)

                               = -(2,107,000 + 229500) = -$2,336,500

b) Operating Cash Flow = (Incremental Sales - Operating Cost - Depreciation) * (1 - Tax Rate) + Depreciation

     For year 1 = (1200000 - 708000 - 421400) * (1 - 40%) +  421400 = $463760

     For year 2 = (2500000 - 1475000 - 674240) * (1 - 40%) + 674240= $884696

     For year 3 = (3250000 - 1917500 - 404544) * (1 - 40%) +  404544 = $961317.60

     For year 4 = (3100000 - 1829000 - 242726.40) * (1 - 40%) + 242726.40 = $859690.56

     For year 5 = (1575000 - 929250 - 242726.40) * (1 - 40%) +  242726.40 = $484540.56

c) Terminal Cash Flow in year 5 = After Tax Salvage Value + Recovery of Net Working Capital

                                                  = Salvage Value - Profit from Salvage Value * (Tax Rate) + 229500

                                                  = Net Book Value + Profit from Salvage Value * (1 - Tax Rate) + 229500

                                                  = 121363.20 + 803636.80 * (1 - 40%) + 229500 = $833,045.28

d) Total Cash Flows for each Period

For year 0 = -$2,336,500

For year 1 = $463,760

For year 2 = $884,696

For year 3 = $961,317.60

For year 4 = $859,690.56

For year 5 = $833,045.28 + $484,540.56 = $1,317,585.84

                 

     

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