As you know from Project 4, McCormick & Company is considering a project that requires an initial investment of $350 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $14 million.

You have been asked to refine your work to include the correct tax impact of depreciation, and the cash flow impact of working capital on the capital budget evaluation.

The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The correct depreciation table is included at the right.

The company will need to finance some of the cash to fund $17 million in receivables and $14 million in Inventory starting at year zero. The company expects vendors to give free credit on purchases of $15 million (accounts Payable). Add the net cash outflow for working capital to the cash outflow for the plant, equipment and land in year zero. The $17 million for receivables and the $14 million for Inventory are cash outflows. The $15 million for receivables is a cash inflow.

Assume that this net working capital is recovered as a cash inflow in year 21.

The company still estimates revenues and expenses the same as it did in Project 4. See Table 2 at the right.

The company now estimates that it can sell the land in year 21 for $40 million. It will also recover the cash spent on working capital in year 21.

Fill out Table 2. Can someone explain the calculations for each column after year 8?

Year MACRS Depreciation 7 Year class 14.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46% $350 Depreciation $50.02 $85.72 $61.22 $43.72 $31.26 $31.22 $31.26 $15.61 Table 2 -$2.67 T Cash from Cash outflow, Revenue in expenses in Depreciation in Taxable income Tax in Millions After tax Cash Flow In $Millions $Millions $Millions in $ Millions 27.5% rate $Millions $1,800 $1,728 $50.02 $21.99 $6.05 $65.95 $1,900 $1,824 $85.72 $9.72 $78.67 $2,000 $1,920 $2,100 $2,016 $2,200 $2,112 $2,300 $2,208 $2,400 $2,304 $2,500 $2,400 $2,600 $2,496 $2,700 $2,592 $2,600 $2,496 $104.00 $28.60 $75.40 $2,500 $2,400 $2,400 $2,304 $2,200 $2,112 $2,000 $1,920 $1,800 $1,728 $1,500 $1,440 $1,200 $1,152 $800 $768 $400 $384 Year MACRS Depreciation 7 Year class 14.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46% $350 Depreciation $50.02 $85.72 $61.22 $43.72 $31.26 $31.22 $31.26 $15.61 Table 2 -$2.67 T Cash from Cash outflow, Revenue in expenses in Depreciation in Taxable income Tax in Millions After tax Cash Flow In $Millions $Millions $Millions in $ Millions 27.5% rate $Millions $1,800 $1,728 $50.02 $21.99 $6.05 $65.95 $1,900 $1,824 $85.72 $9.72 $78.67 $2,000 $1,920 $2,100 $2,016 $2,200 $2,112 $2,300 $2,208 $2,400 $2,304 $2,500 $2,400 $2,600 $2,496 $2,700 $2,592 $2,600 $2,496 $104.00 $28.60 $75.40 $2,500 $2,400 $2,400 $2,304 $2,200 $2,112 $2,000 $1,920 $1,800 $1,728 $1,500 $1,440 $1,200 $1,152 $800 $768 $400 $384