1. A project proposal has the following estimated cash flows: Initial outlay Sales Variable cash expenses...

Transcribed Image Text:

1. A project proposal has the following estimated cash flows: Initial outlay Sales Variable cash expenses Fixed cash expenses Taxes After tax disposition Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 $760,000 $460,000 $480,000 $540,000 $585,000 $ 415,000 $330,000 $ 138,000 $ 144,000 $ 162,000 $ 175,500 $ 124,500 $ 99,500 $ 85,000 $ 95,000 $ 105,000 $ 115,000 $ 125,000 $ 135,000 $ 66,900 $ 74,400 $ 81,900 $ 89,400 $ 51,750 $ 33,000 $305,000 value (positive) Some of these cash flows are positive (inflows) and some are negative (outflows). Use what you know about the nature of sales, expenses, and taxes to determine if they are positive (inflows) or negative (outflows). After doing so please calculate your total cash flows and then use a 7% cost of capital to calculate: a. The net present value and explain what this number means. b. The profitability index and explain what this number means. c. The internal rate of return and explain what this number means. d. The payback period and explain what this number means. e. The present value payback period and explain what this number means. 1. A project proposal has the following estimated cash flows: Initial outlay Sales Variable cash expenses Fixed cash expenses Taxes After tax disposition Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 $760,000 $460,000 $480,000 $540,000 $585,000 $ 415,000 $330,000 $ 138,000 $ 144,000 $ 162,000 $ 175,500 $ 124,500 $ 99,500 $ 85,000 $ 95,000 $ 105,000 $ 115,000 $ 125,000 $ 135,000 $ 66,900 $ 74,400 $ 81,900 $ 89,400 $ 51,750 $ 33,000 $305,000 value (positive) Some of these cash flows are positive (inflows) and some are negative (outflows). Use what you know about the nature of sales, expenses, and taxes to determine if they are positive (inflows) or negative (outflows). After doing so please calculate your total cash flows and then use a 7% cost of capital to calculate: a. The net present value and explain what this number means. b. The profitability index and explain what this number means. c. The internal rate of return and explain what this number means. d. The payback period and explain what this number means. e. The present value payback period and explain what this number means.