a. Determine the incremental earnings from the purchase of the XC-750. b. Determine the free cash flow from the purchase of the XC-750. c. If the appropriate cost of capital for the expansion is 10%, compute the NPV of the purchase. 11 0 -$5,000 $3,500 Year Sales revenue Cost of goods sold Additional personnel Depreciation Equals net operating income Minus income tax Equals unlevered net income Plus depreciation Capital expenditures Add to NWC Free cash flow 1 $10,000 -$7,000 -$2,000 -$275 $725 -$109 $616 $275 2 $10,000 -$7,000 -$2,000 -$275 $725 -$109 $616 $275 3 $10,000 $7,000 $2,000 -$275 $725 -$109 $616 $275 4 $10,000 $7,000 -$2,000 -$275 $725 $109 $616 $275 5 $10,000 $7,000 -$2,000 -$275 $725 -$109 $616 $275 6 $10,000 $7,000 -$2,000 -$275 $725 -$109 $616 $275 7 $10,000 $7,000 $2,000 -$275 $725 -$109 $616 $275 8 $10,000 -$7,000 -$2,000 -$275 $725 -$109 $616 $275 9 $10,000 $7,000 -$2,000 -$275 $725 -$109 $616 $275 10 $10,000 $7,000 $2,000 -$275 $725 -$109 $616 $275 $1,500 $225 $1,275 -$2,750 -$600 -$4,625 -$1,200 $309 $0 $891 $0 $891 $0 $891 $0 $891 $0 $891 $0 $891 $0 $891 $0 $891 $1,000 $1,891 $800 $800 NPV (000) $1,500 Net Working Capital Increased receivables Increased payables Increased inventory NWC (000) $1,500 -$700 $0 $0 $700 -$750 $350 $1,000 $600 $1,500 -$700 $1,000 $1,800 $1,500 -$700 $1,000 $1,800 $1,500 $700 $1,000 $1,800 $1,500 -$700 $1,000 $1,800 $1,500 -$700 $1,000 $1,800 $1,500 $700 $1,000 $1,800 $1,500 -$700 $1,000 $1,800 $1,500 $700 $1,000 $1,800 $1,000 $1,800 $800 $0 a. Determine the incremental earnings from the purchase of the XC-750. b. Determine the free cash flow from the purchase of the XC-750. c. If the appropriate cost of capital for the expansion is 10%, compute the NPV of the purchase. 11 0 -$5,000 $3,500 Year Sales revenue Cost of goods sold Additional personnel Depreciation Equals net operating income Minus income tax Equals unlevered net income Plus depreciation Capital expenditures Add to NWC Free cash flow 1 $10,000 -$7,000 -$2,000 -$275 $725 -$109 $616 $275 2 $10,000 -$7,000 -$2,000 -$275 $725 -$109 $616 $275 3 $10,000 $7,000 $2,000 -$275 $725 -$109 $616 $275 4 $10,000 $7,000 -$2,000 -$275 $725 $109 $616 $275 5 $10,000 $7,000 -$2,000 -$275 $725 -$109 $616 $275 6 $10,000 $7,000 -$2,000 -$275 $725 -$109 $616 $275 7 $10,000 $7,000 $2,000 -$275 $725 -$109 $616 $275 8 $10,000 -$7,000 -$2,000 -$275 $725 -$109 $616 $275 9 $10,000 $7,000 -$2,000 -$275 $725 -$109 $616 $275 10 $10,000 $7,000 $2,000 -$275 $725 -$109 $616 $275 $1,500 $225 $1,275 -$2,750 -$600 -$4,625 -$1,200 $309 $0 $891 $0 $891 $0 $891 $0 $891 $0 $891 $0 $891 $0 $891 $0 $891 $1,000 $1,891 $800 $800 NPV (000) $1,500 Net Working Capital Increased receivables Increased payables Increased inventory NWC (000) $1,500 -$700 $0 $0 $700 -$750 $350 $1,000 $600 $1,500 -$700 $1,000 $1,800 $1,500 -$700 $1,000 $1,800 $1,500 $700 $1,000 $1,800 $1,500 -$700 $1,000 $1,800 $1,500 -$700 $1,000 $1,800 $1,500 $700 $1,000 $1,800 $1,500 -$700 $1,000 $1,800 $1,500 $700 $1,000 $1,800 $1,000 $1,800 $800 $0
