The following I/O is based on information associated with a new project. Projected Income Statements Year 1 2 3 4 Sales Variable cost Fixed cost Depreciation EBIT Taxes (40%) Net Income 9,000,000 5,000,000 2,500,000 750.000 750.000 300.000 450.000 9,000,000 5,000,000 2,500,000 750.000 750.000 300.000 450.000 9,000,000 5,000,000 2,500,000 750.000 750.000 300.000 450.000 9,000,000 5,000,000 2,500,000 750.000 750.000 300.000 450.000 We

Sep 8, 2023

The following I/O is based on information associated with a new project.

Projected Income Statements

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The following I/O is based on information associated with a new project. Projected Income Statements Year 1 2 3 4 Sales Variable cost Fixed cost Depreciation EBIT Taxes (40%) Net Income 9,000,000 5,000,000 2,500,000 750.000 750.000 300.000 450.000 9,000,000 5,000,000 2,500,000 750.000 750.000 300.000 450.000 9,000,000 5,000,000 2,500,000 750.000 750.000 300.000 450.000 9,000,000 5,000,000 2,500,000 750.000 750.000 300.000 450.000 We
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Year

1

2

3

4

Sales

Variable cost

Fixed cost

Depreciation

EBIT

Taxes (40%)

Net Income

9,000,000

5,000,000

2,500,000

750.000

750.000

300.000

450.000

9,000,000

5,000,000

2,500,000

750.000

750.000

300.000

450.000

9,000,000

5,000,000

2,500,000

750.000

750.000

300.000

450.000

9,000,000

5,000,000

2,500,000

750.000

750.000

300.000

450.000

We plan to invest $3,000,000 to start. The residual book value of the new equipment is zero in year 4, while it will sell for $300,000 . In addition, we saved $50,000 in network capital (NWC) at the start of the project. The tax rate is 40%. 

Complete the projected cash flow table.

Projected Cash Flows

Year

0

1

2

3

4

OCF

Changes in the NWC

capital expenditure

( b )

-3,000,000

( a )

( a )

( a )

( a )

( b )

( C )

total cash flow

( )

( )

( )

( )

( )

Calculate the operating cash flow (OCF). 

  1. Calculate the change in NWC in year 0 and year 4.
  1. Calculate the after-tax salvage in year 4. 
  1. Calculate the net present value (NPV) if the required return is 20%.
  1. Calculate the profitability index (PI) if the required return is 15%

Calculate the Internal Rate of Return (IRR).

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