1 CAPITAL BUDGETING 40 POINTS TEMPLATE FIN 431 - 520 IC-1B Webmasters has developed a powerful new server that would be used for corporations internet activities. The data related to this project is shown in the table below: - Cost of the equipment to be purchased in year 0 -Net working capital investment required in year 0 - 5-year MACRS class - depreciation rates given - Number of units sold per year - Market value at end of project given - Expected increase in units sold per year - Selling price per unit - Project life = 4 years - Variable cost per unit - All investments made for the project are reversed in year 4. - Fixed costs per year - Corporate tax rate - Inflation rate per year for sales price, variable cost and fixed cost - Cost of capital Complete the cash flow template and use it to find the project's NPV, IRR, and MIRR. To keep the numbers manageable, work with thousands (000) Part 1. Input Data (in thousands of dollars) Equipment cost (000) Year 0 net working capital Sales in units per year Increase in units sold per year Sales price per unit (000) Variable cost per unit (000) Nonvariable costs - fixed costs (000) $11,500 $4,500 1,250 15% $25.00 $20.00 $1.000 Market value of equipment at Year 4 (000) Tax rate WACC Inflation nervear $1,100 25% 11.00% 2209 Years Initial Cost Part 2. Depreciation and Amortization Schedule Year Equipment Deprin Rate Equipment Depr'n, Dollars Book Value 20.00% 32.00% 11.52% Equipment Part 3. Net Salvage Values, in Year 4 Estimated Market value in Year 4 Book Value in Year 4 Expected Gain or Loss Taxes paid or tax credit Net cash flow from salvage Part 4. Projected Net Cash Flows (Time line of Annual Cash Flows) Years Investment Outlays at Time Zero: Equipment Operating Cash Flows over the Project's Life: Units sold Sales price per unit Variable cost per unit Sales revenue Variable costs Fixed operating costs Depreciation (equipment) Oper.income before taxes (EBIT) Taxes on operating income After-tax operating income Add back depreciation Operating cash flow Terminal Year Cash Flows: Required investment in NWC Net salvage value Net Cash Flow (Time line of cash flows) Part 5. Key Output: Appraisal of the Proposed Project Net Present Value IRR MIRR 1 CAPITAL BUDGETING 40 POINTS TEMPLATE FIN 431 - 520 IC-1B Webmasters has developed a powerful new server that would be used for corporations internet activities. The data related to this project is shown in the table below: - Cost of the equipment to be purchased in year 0 -Net working capital investment required in year 0 - 5-year MACRS class - depreciation rates given - Number of units sold per year - Market value at end of project given - Expected increase in units sold per year - Selling price per unit - Project life = 4 years - Variable cost per unit - All investments made for the project are reversed in year 4. - Fixed costs per year - Corporate tax rate - Inflation rate per year for sales price, variable cost and fixed cost - Cost of capital Complete the cash flow template and use it to find the project's NPV, IRR, and MIRR. To keep the numbers manageable, work with thousands (000) Part 1. Input Data (in thousands of dollars) Equipment cost (000) Year 0 net working capital Sales in units per year Increase in units sold per year Sales price per unit (000) Variable cost per unit (000) Nonvariable costs - fixed costs (000) $11,500 $4,500 1,250 15% $25.00 $20.00 $1.000 Market value of equipment at Year 4 (000) Tax rate WACC Inflation nervear $1,100 25% 11.00% 2209 Years Initial Cost Part 2. Depreciation and Amortization Schedule Year Equipment Deprin Rate Equipment Depr'n, Dollars Book Value 20.00% 32.00% 11.52% Equipment Part 3. Net Salvage Values, in Year 4 Estimated Market value in Year 4 Book Value in Year 4 Expected Gain or Loss Taxes paid or tax credit Net cash flow from salvage Part 4. Projected Net Cash Flows (Time line of Annual Cash Flows) Years Investment Outlays at Time Zero: Equipment Operating Cash Flows over the Project's Life: Units sold Sales price per unit Variable cost per unit Sales revenue Variable costs Fixed operating costs Depreciation (equipment) Oper.income before taxes (EBIT) Taxes on operating income After-tax operating income Add back depreciation Operating cash flow Terminal Year Cash Flows: Required investment in NWC Net salvage value Net Cash Flow (Time line of cash flows) Part 5. Key Output: Appraisal of the Proposed Project Net Present Value IRR MIRR