This assignment question requires you to examine the numbers and explain where they come from,

and to enter the missing information in rows 29-33.

CFW Chapter 5 explains the process, using the Generic Capital Budgeting Template.

The Flash Memory template below is much shorter but contains the same information.

base year ...................................forecast years.......................................

($000s) 2010 2011 2012 2013 2014 2015

Investment in equipment -$2,200

Net working capital required (total from balance sheet each year) $5,648 $7,322 $7,322 $2,877 $1,308 $0

Investment in net working capital -$5,648 -$1,674 $0 $4,446 $1,569 $1,308

Sales $21,600 $28,000 $28,000 $11,000 $5,000

Cost of goods sold (includes depreciation) $17,064 $22,120 $22,120 $8,690 $3,950

Research & development $0 $0 $0 $0 $0

Selling, general & administrative $1,806 $2,341 $2,341 $920 $418

Launch promotion $300 $0 $0 $0 $0

Income before income taxes $2,430 $3,539 $3,539 $1,390 $632

Income taxes $972 $1,416 $1,416 $556 $253

Net income $1,458 $2,124 $2,124 $834 $379

Depreciation $440 $440 $440 $440 $440

Cash flow from operations $1,898 $2,564 $2,564 $1,274 $819

Total cash flow -$7,848 $225 $2,564 $7,009 $2,843 $2,127

Cumulative total cash flow -$7,848 -$7,624 -$5,060 $1,949 $4,792 $6,919

k-wacc Enter it from previous tab

NET PRESENT VALUE (NPV)

PROFITABILITY INDEX (PI)

INTERNAL RATE OF RETURN (IRR)

PAYBACK PERIOD (PP) By inspection

Q2a. Which rows contain balance sheet information? Which rows contain income statement information?

Q2b. Explain the difference between the yellow-highlighted row 14 and row 15.

In addition to digesting the details of Investment Opportunity (page 4), the 5th paragraph on page 2 and the

3rd paragraph on page 3 offer background on working capital.

Q2c. Explain the difference between rows 25 and 26.