Why does NOWC appear as both a negative and a positive number in Table 12.1?

Table 12.1

Transcribed Image Text:

24 Total operating costs 25 EBIT (or Operating Income) 26 Taxes on operating Income B 12 13 Investment Outlays at Time = 0 14 CAPEX = Equipment Cost (1-T) ANOWC=Additional net operating working capital needed 15 Operating Cash Flows Over the Project's 16 Life (Time=1-4) 17 Unit sales 18 Sales price 19 Variable cost per unit 20 Sales revenues = Units x Price 21 Varlable costs = Units x Cost/unit 22 Fixed operating costs except depr'n 23 Depreciation: 100% Bonus Depreciation In Year 0 32 33 After-tax salvage value 34 35 Cash Flow Estimation and Analysis for Expansion Project S 27 EBIT (1-T) = After-tax project operating Income 28 Add back depreciation 29 EBIT (1-T)+ Depreciation 30 Terminal Cash Flows at Time = 4 31 Salvage value (taxed as ordinary Income) Tax on salvage value = 0.25x (SV - BV of equipment at t = 4) 36 25% D ANOWC= Recovery of net operating working capital Project free cash flows = EBIT (1-T) + DEP -CAPEX - ANOWC E 0 -$900 -100 -$1,000 F 1 2,720 $2.00 $4,773 $667 167 $500 0 $500 G $500 2 $1.0196 $1.0404 $5,440 $5,280 2,773 2,747 2,000 2,000 0 0 2,640 $2.00 $4,747 $533 133 $400 0 $400 $400 H 3 2,515 $2.00 2,430 $2.00 $1.0457 $1.1973 $5,030 $4,860 2,630 2,909 2,000 2,000 0 0 $4,909 -$49 -12 -$37 0 -$37 $4,630 $400 100 $300 0 $300 4 $300 50 13 37 100 $100