#3. What is the NPV and how is it calculated?

Compute the Net Working Capital (NWC) cash flow. #1 Year 1 10,000,000 Year 6 38,000,000 Projected Revenue Beginning NWC Ending NWC NWC cash flow $ $ Year 2 22,500,000 1,800,000 2,080,000 (280,000) $ $ $ Year 5 34,000,000 $ 2,720,000 $ 3,040,000 Year 3 26,000,000 2,080,000 2,400,000 (320,000) $ $ $ Year 4 30,000,000 $ 2,400,000 $ 2,720,000 (320,000) $ 1,800,000 (1,800,000) $ $ (320,000 #2 Compute the expected Operating Cash Flow from the production line. Year 2 Year 3 Year 5 Projected Revenue Variable costs Fixed costs Depreciation EBIT Interest on Bonds EBT Tax (35%) Net income Year 1 10,000,000 5,700,000 1,800,000 2,250,000 250,000 3,102.000 (2,852,000) 22,500,000 12,825,000 1,800,000 5,456,400 2,418,600 3,102,000 (683,400) F 26,000,000 14,820,000 1,800,000 6,171,900 3,208,100 3,102,000 106,100 37,135 68,965 Year 4 30,000,000 17,100,000 1,800,000 5,709,300 5,390,700 3,102,000 2,288,700 801,045 1,487,655 34,000,000 19,380,000 1,800,000 5,280,900 7,539,100 3,102,000 4,437,100 1,552,985 2,884,115 (2,852,000) (683,400) OCF = EBIT + Depreciation - Current taxes Operating Cash Flow 2,500,000 7,875,000 9,342,865 10,298,955 11,267,015 #3 Compute the NPV for the project: : Year 0 Year 2 7,875,000 Year 3 9,342.865 Year 4 10,298,955 Year 5 11,267,015 50,000,000 Year 1 2,500,000 35,000,000 (1,800,000) (280,000) (320,000) (320,000) OCF Capital spending Net working capital cash flow Terminal value Total cash flows PV factor PV of amount NPV 50,000,000 1 50,000,000 35,700,000 0.9010 32,165,700 7,595,000 0.8120 6,167,140 9,022,865 0.7310 6,595,714 9,978,955 0.6590 6,576,131 (320,000) () 125,000,000 135,947,015 0.5930 80,616,580