WindMill Ltd. is a Spanish transportation and distribution company focused on the transportation of food to supermarkets. Calefull, a supermarket company, is one of WindMill's largest customers and has proposed a new contract to the company. The contract means that WindMill will be Calefull's partner for the transport of the new supermarkets located in the south of Spain for the next 5 years. The contract includes an annual payment of €4,500,000 to WindMill

WindMill is evaluating the contract and has estimated that they will need 20 new trailers to carry out the contract. Each trailer truck costs €140,000 and the residual value after five years will be €40,000. The company will apply the straight-line depreciation method over time. Each truck will travel 150,000 km/year. Estimated diesel consumption is 0.33l/km. Years two and four will require special maintenance that will cost €10,000 per truck (each year mentioned). The price of diesel is estimated at €1.33/l throughout the contract, the other operating costs will be €0.15/km. Therefore, the company is going to hire 20 new drivers who will cost €30,000 a year each. .

The commercial terms assume that WindMill will invoice the contract year monthly (1/12) and give credit to the customer for 3 months. The tax rate is 24%. Inflation is 0% throughout the life of the contract The WACC is 20% 

1.-Estimate the cash flows (low annual) to the company

2.- Calculate the NPV of the contract 

3.- Calculate the IRR of the contract the contract 

Answer rating: 100% (QA)

To estimate the cash flows NPV and IRR of the contract well need to break down the various components of cash inflows and outflows over the fiveyear c... View the full answer