6. All cash flows are in thousands of dollars. A proposed chemical plant project requires a fixed capital investment of FCI = $10,000 at time zero for new process equipment. Plant startup occurs in year 1 For year 1, annual sales are projected to be $1000 and the year 1 operating cost will be $500. For years 2-10, annual sales are projected to be $1500, and operating costs will be $700 per year. $500 for working capital investment is also needed in year 1, and working capital return is expected to equal $500 at the end of the project (year 10). Salvage value of the new process equipment is expected to be $1000 at the end of the project. The effective income tax rate is 40%. Determine after tax cash flows for years 0, 1, 2, and 10 (final year) only. You may assume that other positive income exists within the company, such that negative taxable income in any given year can be deducted (for tax purposes) in the year incurred. Any depreciation should be calculated using the MACRS Method for equipment with a 9.5-year class life and a 5-Year recovery period (Table 9.2 in Turton text). Use the table below to document your intermediate values (in thousands of dollars), and show your calculations (25 pts). Year 0 Year 1 Year 2 Year 10 Taxable income Tax @ 40% Net income After-tax cash flows 7. Calculate the net present value (NPV) for the discrete cash flow timeline below, imin = 10% (10 pts) YEAR 0 2 3 4 5 Cash flow -750 120 180 180 180 220 1 6. All cash flows are in thousands of dollars. A proposed chemical plant project requires a fixed capital investment of FCI = $10,000 at time zero for new process equipment. Plant startup occurs in year 1 For year 1, annual sales are projected to be $1000 and the year 1 operating cost will be $500. For years 2-10, annual sales are projected to be $1500, and operating costs will be $700 per year. $500 for working capital investment is also needed in year 1, and working capital return is expected to equal $500 at the end of the project (year 10). Salvage value of the new process equipment is expected to be $1000 at the end of the project. The effective income tax rate is 40%. Determine after tax cash flows for years 0, 1, 2, and 10 (final year) only. You may assume that other positive income exists within the company, such that negative taxable income in any given year can be deducted (for tax purposes) in the year incurred. Any depreciation should be calculated using the MACRS Method for equipment with a 9.5-year class life and a 5-Year recovery period (Table 9.2 in Turton text). Use the table below to document your intermediate values (in thousands of dollars), and show your calculations (25 pts). Year 0 Year 1 Year 2 Year 10 Taxable income Tax @ 40% Net income After-tax cash flows 7. Calculate the net present value (NPV) for the discrete cash flow timeline below, imin = 10% (10 pts) YEAR 0 2 3 4 5 Cash flow -750 120 180 180 180 220 1
