XYZ, Inc. is considering a 5-year project. The production will require $1,500,000 in net working capital to
Question:
XYZ, Inc. is considering a 5-year project. The production will require $1,500,000 in net working capital to start and addition net working capital investments each year equal to 15% of the projected sales increase for the following year. Total fixed costs are $1,350,000 per year, variable production costs are $225 per unit, and the units are priced at $345 each. The equipment needed to begin production has an intalled cost of $23,000,000. The equipment is qualified as seven-year MACRS property. MACRS stands for Modified Accelerated Cost Recovery System, where businesses apply MACRS rates to the capital expenditure for annual depreciation amount. In five years, this equipment can be sold for about $4,600,000. The company is in the 35% marginal tax bracket and has a required rate of return on all its projects of 18%.
Projected Unit Sales
Year 1 - 80000
Year 2 - 85000
Year 3 - 90000
Year 4 - 95000
Year 5 - 95000
What would the Sales, Variable Costs and Fixed Costs equal in the cash flows estimation table for years 1-5?
