B8 X fx B F G A D E 1 Suppose Miles, Inc is going to invest $625,000 in some new equipment which will be used to produce a SUPER DUPER COOKIE MAKER. 2 The revenues will be $285,000 the first year, and revenues will grow at 5%. Operating costs (excluding depreciation) are 3 expected to be 40% of sales. Equipment falls in 5 year MACRS property. Net working capital needs are initially $35,000 and 4 they will grow at 5%. No net working capital needs in year 3. Assume "recovery" of NWC in the year after the need. The equipment can be sold 5 for $195,000 in the third year. Estimate the Free Cash flows to the firm. Fill in ALL templates. Show ALL work. 6 What is the NPV of the project if Mile's WACC is 6%? Tax rate is 25% 7 Note: it is OKAY that the property is 5-year MACRS property 8 Free Cash Flows to the Firm but the project is only 3 years! 9 10 Year 0 1 2 3 11 12 Revenues 13 Operating Costs 14 Depreciation expense 15 EBIT 16 Taxes 17 EBIT(1-T) 18 Depreciation expense 19 I. Operating cash flow 20 21 22 II. Change in NWC 23 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B D E F G H #N/A Some cells in this row may not be filled in! You should know which o Some cells in this row may not be filled in! You should know which o #N/A #N/A Acept or Reject? A 24 III. A. Gross capital expenditures 25 III. B After Tax Salvage value 26 27 FCFs to FIRM (FCFF) 28 29 30 NPV 31 32 Balance sheet & depreciation expense 33 34 BASIS 35 MACRS 5 year % 36 Depreciation expense 37 38 Gross PPE 39 Accumulated depreciation 40 Net PPE 0 1 2 3 20.00% 32.00% 19.20% WORK MUST BE SHOWN ON THESE TEMPLATES!!! 41 42 43 Change in Net working capital 44 Year 0 2 3 45 46 Needs (outflow) 47 Recovery (inflows) 48 Change in Net working capital 49 Change in NWC capital including the impact on cash 50 51 52 53 After tax salvage value 54 55 I. Gain or loss on sale 56 Sales price 57 Less Book Value 58 Gain/loss 59 II. After tax value 1 Plus Sales price 1 Less Taxes 1 After tax salvage value 60 Taxes 25% 1 61 62 B8 X fx B F G A D E 1 Suppose Miles, Inc is going to invest $625,000 in some new equipment which will be used to produce a SUPER DUPER COOKIE MAKER. 2 The revenues will be $285,000 the first year, and revenues will grow at 5%. Operating costs (excluding depreciation) are 3 expected to be 40% of sales. Equipment falls in 5 year MACRS property. Net working capital needs are initially $35,000 and 4 they will grow at 5%. No net working capital needs in year 3. Assume "recovery" of NWC in the year after the need. The equipment can be sold 5 for $195,000 in the third year. Estimate the Free Cash flows to the firm. Fill in ALL templates. Show ALL work. 6 What is the NPV of the project if Mile's WACC is 6%? Tax rate is 25% 7 Note: it is OKAY that the property is 5-year MACRS property 8 Free Cash Flows to the Firm but the project is only 3 years! 9 10 Year 0 1 2 3 11 12 Revenues 13 Operating Costs 14 Depreciation expense 15 EBIT 16 Taxes 17 EBIT(1-T) 18 Depreciation expense 19 I. Operating cash flow 20 21 22 II. Change in NWC 23 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B D E F G H #N/A Some cells in this row may not be filled in! You should know which o Some cells in this row may not be filled in! You should know which o #N/A #N/A Acept or Reject? A 24 III. A. Gross capital expenditures 25 III. B After Tax Salvage value 26 27 FCFs to FIRM (FCFF) 28 29 30 NPV 31 32 Balance sheet & depreciation expense 33 34 BASIS 35 MACRS 5 year % 36 Depreciation expense 37 38 Gross PPE 39 Accumulated depreciation 40 Net PPE 0 1 2 3 20.00% 32.00% 19.20% WORK MUST BE SHOWN ON THESE TEMPLATES!!! 41 42 43 Change in Net working capital 44 Year 0 2 3 45 46 Needs (outflow) 47 Recovery (inflows) 48 Change in Net working capital 49 Change in NWC capital including the impact on cash 50 51 52 53 After tax salvage value 54 55 I. Gain or loss on sale 56 Sales price 57 Less Book Value 58 Gain/loss 59 II. After tax value 1 Plus Sales price 1 Less Taxes 1 After tax salvage value 60 Taxes 25% 1 61 62