Question

*First, what is the annual operating cash flow of the project for year 1?

*What is the annual operating cash flow of the project for year 2?

*What is the annual operating cash flow of the project for year 3?

*What is the annual operating cash flow of the project for year 4?

*What is the annual operating cash flow of the project for year 5?

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

*Then, what is the incremental cash flow of the project in year 0?

*What is the incremental cash flow of the project in year 1?

*What is the incremental cash flow of the project in year 2?

*What is the incremental cash flow of the project in year 3?

*What is the incremental cash flow of the project in year 4?

*What is the incremental cash flow of the project in year 5?

*So what is the IRR of the project?

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 $3,900,000 and will be depreciated using a five-year MACRS i The sales manager has an estimate for the sale of the classic Thunderbirds. The annual sales volume will be as follows: Year one: 230 Year four: 380 Year two: 300 Year five: 310 Year three: 350 If the sales price is $27.000 per car, variable costs are $17,000 per car, and food costs are $1.200.000 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) 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

Answer 1

dupreciation of foal uipment Amnual 180,000 3900 000 xO2 3900 O00 Xo 32 243000 3100.000 X0-192074 o0 yaar 3 3900000 R01IS2 449,280 Jeay y 3900 000 X0-11S2s 8o year S calaulationfoperting Cesh fows Seuing Price 31,00 11000 variable 220margin $ 10,000 Cing'o 000 year a0 uni-ts o,oao a 300 300 units X 10,000 3000 350 units 16, O00 3500 &1NGP -VE B80 units X 0000 3800 310 vni t 10,000 494 664-23 3100 Ast 1912: -2 Book velue of euipament aftey yar 5 3900000 760eo0-1a48000-748,800-4Y928O -449280 a,6YO SP T 1200 3co0

४०০s3 ४ dear& 3800 3100 3000 9300 3500 Contribu tien ess 1200 1a00 1900 S8deo Fix Gosts 4Y9.26 449.28 748.8 a43 780 PPyeciation 1450 72 2)So:72 1551-2 EBIT V35.22 645.22 165-6 96 Toxes 30 ISOS.s JOIS.S 386.Y 1085-8y .వివి Net Inome 449-28 447.28 748.8 780 1248 Deprciatinn 1834-69 1954 78 1469-78 1004 634-4 operating asth Hlows 3000 8300 Salvage for end yeaYS t yhe equipment The at Soo, 000 aay640 1-49010 ot value hes on Sale 560,000- 2ay640 a15 360 Tax Jein On a1s 360 x03 iR82608 3 0 after tar faw mdpais Bdae 500 00-8260g 44392 cdcbPCY

IM Cemental Cash tows for PnJe (in, oos Yaro 3 Invest ment -3900 300 - 500 ANWC 1634.4 1839-6y 195418 146Y 7 411.392 004 OC F Salage value 16 34.4 1834-64 115478 Tncrementel y00 1004 9382 112 Cagh Fldes CalCulation of IRR - the Yafe TRR i s which aly outilows at the equals au snflows 9Ye Present value t Let r be the IRR -4400 +1004 1634-4 (+)t 1834-64 + 11S4.78 t I4Y ACA+I)EC) + 235272 Soluny forIPR nTrailermmethed using Calaulator It Cones apnrimatchy a4-01