Nilestown Corp. currently sells 30,000 motor homes per year at $73,000 each, and 14,000 luxury motor coaches per year at $120,000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 500 of these campers per year at $19,000 each. If we introduce the new camper project, variable costs of portable camper are expected to be 44 percent of sales, and fixed costs are $2,930,000 per year. The proposed project should have a four-year life. The introduction of the new camper project requires $2,100,000 in manufacturing equipment. We would have to invest $900,000 in working capital at the start. After that, net working capital requirements would be 30 percent of sales. All working capital will be reclaimed at the end of the project.

1)An independent consultant has determined that if Nilestown introduces the new campers, it should boost the sales of its existing motor homes by 270 units per year, and reduce the sales of its motor coaches by 130 units per year. What is the amount to use as the annual sales figure when evaluating this project? Why?

2)Suppose the introduction of the camper project has no impact on existing sales of motor homes and motor coaches. Depreciation will be straight line with $100,000 salvage.

Statement of comprehensive income

3)Given the assumptions in question 2, what will be the operating cash flow (OCF) per year?

4)Given the assumptions in question 2 & 3, what will be the cash flow from assets per year?

5)Given your answer in question 4, what is the payback period of this project?

Sales

$$ _______________________

Variable Cost

$

Fixed Cost

$

Depreciation

$

EBIT

$

Taxes (35%)

$

Net Income

$