Calculate cash flows,NPV,IRR and Profitability Index

re Toys4us is contemplating investing $800,000 in the acquisition of machines to produce a new line of teddy bears to hit the market with the slogan One bear a day. The new teddy bears will be in the market for four years and, based on market research that cost the company $20,000, are expected to generate earnings before interest, tax, depreciation and amortisation (EBITDA) of $300,000 per year. This will be, however, at the expense of the current teddy bear collection (Bears 4 life) which is to face a decrease of 50% in their net cash flows before tax (forecast at $100,000 yearly for the next two years after which the collection will be retired. Moreover, the new line of teddy bears will lead to a one-off increase of $50,000 in inventories and accounts receivable, and of $30,000 in accounts payable (both changes being immediately reversed once the new bears are removed from the market). Given the high production levels of the new teddy bears, Toys4us' storage capacity will need to increase and, therefore, the $80,000 sale of one of its warehouses must be cancelled (the warehouse has been fully depreciated). The machines to be purchased have a lifetime of 4 years and will be depreciated based on the straight-line method to zero. The machines are expected to have a salvage value of $150,000 in 4 years. Toys4us is subject to a tax rate of 30% and will finance half of the cost to buy the machines with a loan from Monte Carlo Bank to be repaid in annual instalments of $150,000. The appropriate discount rate for Toys4us is 10%pa compounded annually. Ston sharing Hide