Question

1: What is the operating cash flow for this project for the first five years of the 10-year period??

2: for the last five years of the 10-year period?

3: What is the book value?

4: Calculate the gain or loss at disposal of the manufacturing equipment.

5: What is the after-tax cash flow at disposal?

6: What is the net present value?

NPV, Migliotti Restaurants is looking at a project with the following forecasted sales: first-year sales quantity of 36,000, with an annual growth rate of 4.00 over the next ten years. The sales price per unit will start at $42.00 and will grow at 2.00% per year. The production costs are expected to be 55% of the current year's sales price. The manufacturing equipment to aid this project will have a total cost (including installation) of $2,100,000. It will be depreciated using MACRS, E. and has a seven-year MACRS life classification. Fixed costs will be $360,000 per year. Miglietti Restaurants has a tax rate of 38%. What is the operating cash flow for this project over these ten years? Find the NPV of the project for Miglietti Restaurants if the manufacturing equipment can be sold for $160,000 at the end of the ten-year project and the cost of capital for this project is 7%. What is the operating cash flow for this project in year 1? $ (Round to the nearest dollar.) Enter your answer in the answer box and then click Check Answer Clear All Check Answer 11 parts emaining

Answer 1

Miglietti	0	1	2	3	4	5	6	7	8	9	10
Quantity		36,000	37,440	38,938	40,495	42,115	43,800	45,551	47,374	49,268	51,239
Price		$         42.00	$         42.84	$         43.70	$         44.57	$         45.46	$            46.37	$         47.30	$         48.24	$         49.21	$         50.19
MACRS %		14.29%	24.49%	17.49%	12.49%	8.93%	8.93%	8.93%	4.45%
Investment	$ (2,100,000)
Salvage											$     160,000
Sales		$ 1,512,000	$ 1,603,930	$ 1,701,449	$ 1,804,897	$ 1,914,634	$    2,031,044	$ 2,154,532	$ 2,285,527	$ 2,424,487	$ 2,571,896
VC		$    (831,600)	$    (882,161)	$    (935,797)	$    (992,693)	$(1,053,049)	$   (1,117,074)	$(1,184,992)	$(1,257,040)	$(1,333,468)	$(1,414,543)
FC		$    (360,000)	$    (330,000)	$    (330,000)	$    (330,000)	$    (330,000)	$      (330,000)	$    (330,000)	$    (330,000)	$    (330,000)	$    (330,000)
Depreciation		$    (300,090)	$    (514,290)	$    (367,290)	$    (262,290)	$    (187,530)	$      (187,530)	$    (187,530)	$      (93,450)	$                -	$                -
EBT		$       20,310	$    (122,522)	$       68,362	$     219,913	$     344,055	$        396,440	$     452,009	$     605,037	$     761,019	$     827,353
Tax (38%)		$        (7,718)	$       46,558	$      (25,977)	$      (83,567)	$    (130,741)	$      (150,647)	$    (171,763)	$    (229,914)	$    (289,187)	$    (314,394)
Profits		$       12,592	$      (75,963)	$       42,384	$     136,346	$     213,314	$        245,793	$     280,246	$     375,123	$     471,832	$     512,959
Cash Flows	$ (2,100,000)	$     312,682	$     438,327	$     409,674	$     398,636	$     400,844	$        433,323	$     467,776	$     468,573	$     471,832	$     612,159
NPV	$ 920,006.35

Depreciation = MACRS % x Investment

Operating Cash Flows (OCF) = Profits + Depreciation

Cash Flows = OCF + Investment + Salvage x (1 - tax rate)

NPV can be calculated using the same function in excel or calculator.