Projected Net Cash Flows Estimation Statement

YEARS

0 1 2 3 4

2015 2016 2017 2018 2019

Investment Outlays

Buildings $ 12,000

Equipment $ 8,000

Operating Cash Flow Over the Project's Life

Unit Sold $20,000 $20,000 $20,000 $20,000

Sales Price $ 3.00 $ 3.06 $ 3.12 $ 3.18

Sales Revenue $ 60,000 $ 61,200 $ 62,424 $ 63, 672

Variable Costs $ 42,000 $ 42,840 $ 43, 697 $ 44,571

Fixed Operating Costs $ 8000 $ 8080 $ 8161 $ 8242

Depreciation (building) $ 156 $ 312 $ 312 $ 312

Depreciation (equipment) $1600 $2560 $1520 $960

Operating Income before taxes (EBIT) $8244 $7408 $8734 $9587

Taxes on operating income (40%) $3298 $2963 $3949 $3835

Net Operating profit after taxes (NOPAT) $4946 $4445 $5241 $5752

Add back depreciation $1756 $2,872 $1,832 $1,272

Operating cash flow $ 6,702 $ 7,317 $ 7,073 $ 7,024

Cash Flows Due to Net Operating Working Capital

Net Operating WorkingCapital (based on sales) $ 6,000 $ 6,120 $ 6,242 $ 6,367 $0

Cash Flows due to investment in NOWC ($6,000) ( $120) ($122) ($125) $6367

Salvage Cash Flows: Long Term Asset

Net Salvage Cash Flows: Building $ 8,863

Net Salvage cash flow: Equipment $ 1,744

TotalSalvage cash flows $ 10,607

Net Cash Flow (Time Line of cash flows) ($26,000) $6,582 $ 7,194 $ 6,948 $ 23,999

1.Estimate the incremental cash flows to be received from this project.

2.Using the incremental cash flows, compute the following and the state in each case whether the company should go head with the project.

a.Payback

b.NPV

C.IRR

d.Profitability Index