1. Construct annual incremental operating cashflow statements.
2. Estimate the required net working capital for each year and the cash flow due to investments in net working capital.

Shrieves Casting Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Sidney Johnson, a recently graduated MBA. The production line would be set up in unused space in Shrieves main plant. The machinery would incur $10,000 in shipping charges, and it would cost an additional $28,000 to install the equipment. The machinery has an economic life of 4 years, and Shrieves has obtained a special tax ruling that places the equipment in the MACRS 3year class. The machinery is expected to have a salvage value of 15% of initial outlay after 4 years of use.

The new line would generate incremental unit sales per year for 4 years at an incremental cost of $108 per unit in the first year, excluding depreciation. Each unit can be sold for $200 in the first year. The sales price and cost are both expected to increase by 3% per year due to inflation. Further, to handle the new line, the firms net working capital would have to increase by an amount equal to 12% of sales revenues. The firms tax rate is 35%, and its overall weighted average cost of capital is 10%.

	Group 1	Group 2	Group 3	Group 4	Group 5
Invoice price	225,000	250,000	300,000	380,000	410,000
Unit sales	1,300	1,500	2,000	2,300	2,500
Poor acceptance	950	1,000	1,500	2,000	2,000
Strong acceptance	1,700	2,000	2,500	2,700	3,000