Question: Problem 3 Net Operating Profits (NOPAT) Add Back Depreciation Operating Cash Flow Net Operating Working Capital ?? Increase NOWC ?? Total Annual Project Cash Flow

Problem 3

Working Capital ?? Increase NOWC ?? Total Annual Project Cash Flow ??

Net Operating Profits (NOPAT) Add Back Depreciation Operating Cash Flow Net Operating Working Capital ?? Increase NOWC ?? Total Annual Project Cash Flow ?? Terminal Year Cash Flow Machine Sale Less: Book Value of Machine Profit on Sale Tax on Profit (25%) Net Salvage Value on Equipment Free Cash Flow Required Rate of Return (WACC) ?? Problem 3 - Evaluating a Replacement Project Year 0 Acquisition - 5 Year Life New Machinery- Sale-OldMac11hle ?? Total Initial Investment ?? New Sales Old Sales Change in Sales Year 1 Year 2 Year 3 Year 4

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2. Find out if there are other reference points that can be used as reasonable alternatives.

1. Identify your reference point when making a decision based on an element of risk.

3. If there are reasonable alternatives, think about your decisions based on the different reference points and see if there are any contradictions in the decisions.