Question

Homework: Chapter 10 Homework Save 8 of 8 (0 complete) HW Score: 0%, 0 of 8 pts Score: 0 of 1 pt P10-20 (similar to) Question Help Project cash flow and NPV. The managers of Classic Autos Incorporated plan to manufacture dassic Thunderbirds (1957 replicas). The necessary foundry equipment will cost a total of $4,000,000 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: 250 Year two: 280 Year three: 350 Year four: 350 Year flve: 320 If the sales price is $30,000 per car, variable costs are $18,000 per car, and fixed costs are $1,200,000 annually, what is the annual operating cash flow if the tax rate is 30%7 The equipment is sold for salvage for $500,000 at the end of year five. Net working capital increases by $600,000 at the beginning of the project (year ) and is reduced back to its original level in the final year. Find the internal rate of retum for the project using the incremental cash flows. First, what is the annual operating cash flow of the project for year 1? $ (Round to the nearest dollar.) Enter your answer in the answer box and then click Check Answer. parts 12 remaining Clear All Check Answer

Answer 1

OCF is Operating Cash Flow

Year 1:
OCF=(250*(30000-16000)-1200000-4000000*20%)*(1-30%)+4000000*20%=1850000

Year 2:
OCF=(280*(30000-16000)-1200000-4000000*32%)*(1-30%)+4000000*32%=2288000

Year 3:
OCF=(350*(30000-16000)-1200000-4000000*19.2%)*(1-30%)+4000000*19.2%=2820400

Year 4:
OCF=(350*(30000-16000)-1200000-4000000*11.52%)*(1-30%)+4000000*11.52%=2728240

Year 5:
OCF=(320*(30000-16000)-1200000-4000000*5.76%)*(1-30%)+4000000*5.76%=2365120

Total cash flow=2365120+600000=2965120.00

IRR=IRR({-4000000-600000;1850000;2288000;2820400;2728240;2365120+600000})=42.09%