(4) Cash Flow Estimation - We assume that the company you selected is considering a new project. The project has 10 years life. This project requires the initial investment of $60 million to purchase the building and FINC 6352 Financial Management MP2 Dr. Xavier Garza Gmez equipment and $3 million for shipping & installation fee. The fixed assets fall in the 10-year MACRS class. The salvage value of fixed assets is $6 million. The number of units of the new product expected to be sold in the first year is 250,000 and the expected annual growth rate is 10%. The sales price is $60 per unit and the variable cost is $46 per unit in the first year. The fixed costs for the project are $3,000,000 per year. Prices and costs will be adjusted based on the estimated annualized inflation rate of 5%. The required net operating working capital (NOWC) is 12% of sales. Students will estimate the average tax rate in recent years and use it in the calculations. The project is assumed to have the same risk as the corporation. - Compute the depreciation basis and annual depreciation of the new project. (Please refer to table for MACRS allowances) - Estimate annual cash flows for the 10 years.

A template file is available.