Premium Company is considering the introduction of a new product that requires to purchase of a new
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Question:
Premium Company is considering the introduction of a new product that requires to purchase of a new industrial oven. The industrial size oven will cost $960,000 and will be used for 5 years.
The company is in the 25% marginal tax bracket and has a required rate of return of 11%. A once-off additional working capital requirement of $35,000 is needed that will be liquidated at the end of year 5.
The accountant has forecasted that this oven would be able to generate the following operating cash flows over 5 years:
YEARS | 1 | 2 | 3 | 4 | 5 |
Operating cash flows | $ 325,000 | $ 276,250 | $ 325,000 | $ 247,000 | $ 178,750 |
Complete the following template and write down the NET CASH FLOWS for each year.
CASH FLOW BUDGETING | ||||||
SECTION 1. Determine the investment required to launch a new project | ||||||
Year | 0 | 1 | 2 | 3 | 4 | 5 |
Net capital investment required | ||||||
TOTAL INVESTMENT REQUIRED | ||||||
SECTION I. Calculate the change in EBIT, Taxes and Deprecation | ||||||
Year | 0 | 1 | 2 | 3 | 4 | 5 |
OPERATING CASH FLOWS | ||||||
SECTION III. Calculate Net Working Capital | ||||||
0 | 1 | 2 | 3 | 4 | 5 | |
Change in Working Capital: | ||||||
SECTION II - NET CASH FLOW PER YEAR | ||||||
TOTAL INVESTMENT REQUIRED | ||||||
OPERATING CASH FLOWS | ||||||
NET CASH FLOW | ||||||
PAYBACK: | ||||||
Rate of discount (WACC): | ||||||
NPV | ||||||
IRR |
Related Book For
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
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