CAPEX Example

Unit Sales

Unit Price

Unit VMC

Revenues

Variable Costs

Fixed Costs

Depreciation

EBIT

Taxes @ 34%

Net Income

+ Depreciation

NWC

NWC

+ NWC Recovery

Capital Spending

Salvage Value

Total Cash Flow

Cumm Cash Flow

Payback

NPV @ 15%

IRR

	MACRS %
1	14.29%
2	24.49%
3	17.49%
4	12.49%
5	8.93%
6	8.92%
7	8.93%
8	4.46%

B D F H E G Your company is evaluating a new product and you are required to provide a financial evaluation and recommendation Marketing has given the following estimates: Project Year 1 Unit Sales 3,000 Selling Price per Unit $ 120 $ 2 5,000 120 3 6,000 120 $ 4 6,500 110 $ 5 6,000 110 $ 6 5,000 110 $ 7 4,000 110 $ 8 3,000 110 $ Operations has given the following estimates: VMC $60 per unit each year Fixed Mfg Costs $25,000 each year Working capital required for this project: $20,000 is required up front; subsequent years is estimated to be 15% of $ sales Cost of Machinery $800,000 Machine depreciated using 7-years MACRS table (provided on next tab) Anticipate salvage value: 20% of original cost of machine Prior to start-up and caused by the installation of the new machine production will be disrupted causing the loss of 500 units selling for $50 with a VMC of $30 34% Info from the CFO: Marginal tax rate: Required rate of return: Assume 0 inflation 15% She has asked you to calculate the following and asked for your recommendation, accept or reject the project NPV IRR Payback