Project cash flow and NPV. The managers of Classic Autos Incorporated plan to manufacture classic Thunderbirds (1957 replicas). The necessary foundry equipment will cost a total of $4,200,000 and will be depreciated using a five-year MACRS life, . The sales manager has an estimate for the sale of the classic Thunderbirds. The annual sales volume will be as follows: Year one: 260 Year four: 380 Year two: 300 Year five: 310 Year three: 340 If the sales price is $27,000 per car, variable costs are $16,000 per car, and fixed costs are $1,400,000 annually, what is the annual operating cash flow if the tax rate is 30%? The equipment is sold for salvage for $500,000 at the end of year five. Net working capital increases by $500,000 at the beginning of the project (year 0) and is reduced back to its original level in the final year. Find the internal rate of return for the project using the incremental cash flows. MACRS Fixed Annual Expense Percentages by Recovery Class Year 3-Year 5-Year 7-Year 10-Year 1 33.33% 20.00% 14.29% 10.00% 2 44.45% 32.00% 24.49% 18.00% 3 14.81% 19.20% 17.49% 14.40% 4 7.41% 11.52% 12.49% 11.52% 5 11.52% 8.93% 9.22% 6 5.76% 8.93% 7.37% 7 8.93% 6.55% 8 4.45% 6.55% 9 6.55% 10 6.55% 11 3.28% Next, what is the after-tax cash flow of the equipment at disposal? (Round to the nearest dollar.) Then, what is the incremental cash flow of the project in year 0? (Round to the nearest dollar.) Then, what is the incremental cash flow of the project in year 0? (Round to the nearest dollar.) What is the incremental cash flow of the project in year 1? (Round to the nearest dollar.) What is the incremental cash flow of the project in year 2? (Round to the nearest dollar.) What is the incremental cash flow of the project in year 3? (Round to the nearest dollar.) What is the incremental cash flow of the project in year 4? (Round to the nearest dollar.) What is the incremental cash flow of the project in year 5? (Round to the nearest dollar.)

Project cash flow and NPV. The managers of Classic Autos Incorporated plan to manufacture classic Thunderbirds (1957 replicas). The necessary foundry equipment will cost a total of $4,200,000 and will be depreciated using a five-year MACRS life, . The sales manager has an estimate for the sale of the classic Thunderbirds. The annual sales volume will be as follows: Year one: 260 Year four: 380 Year two: 300 Year five: 310 Year three: 340 If the sales price is $27,000 per car, variable costs are $16,000 per car, and fixed costs are $1,400,000 annually, what is the annual operating cash flow if the tax rate is 30%? The equipment is sold for salvage for $500,000 at the end of year five. Net working capital increases by $500,000 at the beginning of the project (year 0) and is reduced back to its original level in the final year. Find the internal rate of return for the project using the incremental cash flows. MACRS Fixed Annual Expense Percentages by Recovery Class Year 3-Year 5-Year 7-Year 10-Year 1 33.33% 20.00% 14.29% 10.00% 2 44.45% 32.00% 24.49% 18.00% 3 14.81% 19.20% 17.49% 14.40% 4 7.41% 11.52% 12.49% 11.52% 5 11.52% 8.93% 9.22% 6 5.76% 8.93% 7.37% 7 8.93% 6.55% 8 4.45% 6.55% 9 6.55% 10 6.55% 11 3.28% Next, what is the after-tax cash flow of the equipment at disposal? (Round to the nearest dollar.) Then, what is the incremental cash flow of the project in year 0? (Round to the nearest dollar.) Then, what is the incremental cash flow of the project in year 0? (Round to the nearest dollar.) What is the incremental cash flow of the project in year 1? (Round to the nearest dollar.) What is the incremental cash flow of the project in year 2? (Round to the nearest dollar.) What is the incremental cash flow of the project in year 3? (Round to the nearest dollar.) What is the incremental cash flow of the project in year 4? (Round to the nearest dollar.) What is the incremental cash flow of the project in year 5? (Round to the nearest dollar.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 13P

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Question

Project cash flow and NPV. The managers of Classic Autos Incorporated plan to manufacture classic Thunderbirds (1957 replicas). The necessary foundry equipment will cost a total of

$4,200,000

and will be depreciated using a five-year MACRS life,

The sales manager has an estimate for the sale of the classic Thunderbirds. The annual sales volume will be as follows:

Year one: 260		Year four: 380
Year two: 300		Year five: 310
Year three: 340

If the sales price is

$27,000

per car, variable costs are

$16,000

per car, and fixed costs are

$1,400,000

annually, what is the annual operating cash flow if the tax rate is

30%?

The equipment is sold for salvage for

$500,000

at the end of year five. Net working capital increases by

$500,000

at the beginning of the project (year 0) and is reduced back to its original level in the final year. Find the internal rate of return for the project using the incremental cash flows.

MACRS Fixed Annual Expense Percentages by Recovery Class

Year	3-Year	5-Year	7-Year	10-Year
1	33.33%	20.00%	14.29%	10.00%
2	44.45%	32.00%	24.49%	18.00%
3	14.81%	19.20%	17.49%	14.40%
4	7.41%	11.52%	12.49%	11.52%
5		11.52%	8.93%	9.22%
6		5.76%	8.93%	7.37%
7			8.93%	6.55%
8			4.45%	6.55%
9				6.55%
10				6.55%
11				3.28%

Next, what is the after-tax cash flow of the equipment at disposal?