Free Cash Flows and Net Present Value calculation:

When entering numbers that involve multiples $($such as Revenue $=$ unit sales Price$/$unit $x$

Quantity$)$ enter formulas so that you can change either Price$/$unit or Quantity and see how

changes influence your final answer.

The details for the project are as follows:

a$.$ All cash flows occur at the end of the year, today is time $0.$ All investment occurs today

$($time $0).$ The first annual net cash flow occurs $1$ year from now at time $1.$

b$.$ Buying equipment: $$400,000$ cost $+$$$60,000$ shipping $+$$$30,000$ installation.

c$.$ The equipment is depreciated over $6$ years but only used for $4$ years.

d$.$ Selling the equipment at the end of year $4=$$$115,000.$

i$.$ Hint: The assets will be sold at the end of year $4.$ If the sale price exceeds the net

book value of the assets at the end of year $4$ you must pay tax on the difference

$($use the tax rate mentioned below$).$

e$.$ Depreciation Method for Tax Purposes: MACRS $5-$year class.

f$.$ Annual unit sales $=1,500.$

g$.$ Sales price per unit $=$$$220.$

h$.$ Cost per unit $=$$$120.$

i$.$ Assume the sales price and the unit cost escalate at $5\%$ per year.

j$.$ Other incrememtal cash costs $=30000$ per year.

k$.$ Net working capital at each date:

i$.$ Accounts receviables Sales $+1)[$the $AR$ at time $0$ equals $\mathrm{.}13$ times

expected total sales at time $1]$

ii$.$ Accounts payables $(AP{)}_t=16\%(COG{S}_{+1})[$the $AP$ at time $0$ equals $\mathrm{.}16$ times

expected total sales at time $1]$

Tax rate $=30\%.$

$m.$ The discount rate is $6\mathrm{.}5\%.$