$ $ $ 77,000 10,500 15,000 $ 1 Project III 2 Net Present Value and Payback 3 Mary is starting a food truck business. 4 5 Initial Investment 6 The food truck will be purchased for 7 Other equipment required (POS system, etc.) 8 Working capital required at start-up for inventory (no depreciation) 9 Other Items The food truck and other equipment will be depreciated for 7 years 10 using straight line depreciation - no salvage value 11 Annual sales are estimated to be 12 Cost of goods sold % is 13 The food truck will require additional repairs in year 5 of 14 Labor cost per year will be 15 Other monthly operating costs are 16 17 Her borrowing rate (cost of capital) is 18 19 Required: 20 Prepare a schedule of all cash flows and expenses 21 Calculate income taxes at as a % earnings before taxes Calculate present value of net cash flows and net present value using 22 the present value tables in the textbook 23 Calculate the payback period of the investment 24 Should the investment be pursued? Why or why not? Should the investment be pursued if revenues are $120,000 per year? 25 Why or why not? 26 For the fun of it Calculate NPV and IRR using Excel 27 Check figure NPV = $8,576 using tables 28 $ $ $ 150,000 per year 35% of sales 2,500 65,000 per year 6,000 per year 9% Points 20 N/A Tax rate 30% 10 5 Answer at bottom 5 Answer at bottom Formulas - Financial 5 N/A 45 Total Natcoch Matcarb CIU Matcach Matcach Mot coob A B J K C D Net Cash Flow Net Cash Flow Year 1 Year 2 E F G H 1 Net Cash Net Cash Net Cash Net Cash Net Cash Flow Year 3 Flow Year 4 Flow Year 5 Flow Year 6 Flow Year 7 Initial Investment 29 30 Initial Investment 31 XXX 32 XXX 33 XXX 34 35 Cash Inflows 36 XXX 37 38 Total cash inflows 39 Cash Outflows 40 XXX 41 XXX 42 XXX 43 XXX 44 45 Total cash outflows 46 47 Earnings before depreciation and taxes 48 Depreciation 49 Earnings before taxes 50 Taxes 51 Earnings after taxes 52 Depreciation - Add back 53 54 Net cash flow Times X Present Value $1 Factor 9% for N periods 55 Appendix B 56 Present Value of Net Cash Flows 57 58 Cost of Capital 59 Net Present Value 60 Net Present Value Excel 61 Internal Rate of Return Excel Total initial Investment $ $ 9% 62 63 . B C D E G . 63 64 Payback Period 65 66 67 68 69 70 71 72 Initial Investment 73 74 Should the investment be pursued? Why or why not? 75 76 77 Should the investment be pursued if revenues are $120.000 78 per year? Why or why not? 79 80 81 82