only need 7 and 8!

Capital Expenditure @ t = 0 (Depreciable basis): $500,000 Inventories will rise by 60,000. Payables will rise by $17,000. MACRS 3-year class property (depreciation: 33%, 45%, 15%, 7%) Economic life: 3 years (you will have remaining depreciable basis to deal with at the end of year 3) Inflation = 3% Salvage value: $89,000 (do not need to inflate this number even though CF is in t = 3) Project sales revenues: $550,000 (in t = 0 dollars, need to account for inflation in years t = 3) Operating costs: 60% of sales Tax rate = 35%, WACC = 11% 1. Calculate the Acquisition Stage FCF. 2. Calculate OCF in Year 2. 3. Calculate Year 3 FCF. 4. Calculate Project NPV. Now assume the project involves the decision to replace an existing asset. (None of the below figures need to adjusted for inflation.) Remaining economic life: 3 years Current market price: $32,000 Annual depreciation: $10,000 Remaining depreciable basis (at t = 0): $30,000 Salvage value (at t = 3): $25,000 5. Calculate the Acquisition Stage FCF. 6. Calculate OCF in Year 2. 7. Calculate Year 3 FCF. (Make sure you calculate remaining depreciable basis as 7% of the CapEx of the new machine. It should be the same as in #3, although you may need to change the formula if you use a certain spreadsheet as a template.) 8. Calculate Project NPV