9. The estimation of cash flows Consider the case of The Dairy Company (TDC): The Dairy Company (TDC) currently earns annual revenues of $1,250,000 and incurs total operating expenses (excluding depreciation and interest expense) of 45% of revenues. Its earnings are taxed at a rate of 40%. Today, its budgeting committee is evaluating the purchase of a new tractor. The tractor is expected to cost $15,000, plus $3,500 in freight and setup expenses, and will be depreciated using straight-line depreciation. It is expected that the tractor will have a useful life of ten years and a salvage value equal to 25% of its purchase price. It is further expected that the tractor will increase the firm's productivity and cause a 30.00% increase in the firm's annual sales and total operating expenses (excluding depreciation and interest expense). If the tractor is purchased, the firm will require an additional $5,000 in net working capital (NWC). The company's existing tractor is almost completely worn out. It is fully depreciated and can't even be sold for scrap. As a result, there are no expected tax consequences associated with the disposal of the old tractor. Given this information, 1. Complete the following equation that assists in the calculation of the firm's net investment (NINV) for the new tractor and calculate its value. NINV = Purchase price + Annual depreciation expense, which equals $16,388. NINV = Purchase price + Shipping and Installation charges + Additional NWC, which equals $23,500. NINV = Purchase price + Additional NWC, which equals $20,000. 2. Complete the following tale that can be used to compute the firm's incremental operating cash flows. Note: Round your answers to the nearest whole dollar. Firm Value With Tractor Firm Value Without Tractor Net Change Revenues Less: Expenses $1,250,000 $731,250 $168,750 Less: Depreciation Expense $0 Earnings Before Taxes $892,362 $687,500 $204,862 Less: Taxes $356,945 $275,000 $81,945 Earnings After Taxes $535,417 $412,500 $122,917 Plus: Adjustment for Non-Cash Expenses $1,388 0 $1,388 Net Cash Flow $412,500 3. Complete the following equation that assists in the calculation of the firm's terminal cash flow for the new tractor and calculate its value. NCFT Operating After-Tax Cash Flow + Salvage value + Recovery of Net working capital, which totals $546,430 NCFT Operating After-Tax Cash Flow + Recovery of Net working capital, which totals $541,805 = NCFT = Operating After-Tax Cash Flow + Salvage value, which totals $541,430