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Capstone Quarry is analyzing whether a new contract proposal will be a good idea. The relevant data is shown below. The net working capital will

Capstone Quarry is analyzing whether a new contract proposal will be a good idea. The relevant data is shown below. The net working capital will be paid in the same time period as the cost of the equipment and will be recovered at the end of the project. Remember to calculate the after-tax gain or loss of salvage as part of your terminal cash flow.

Capstone Quarry Company Contract Analysis

Amount of Rock Salt per Year

23,000 Tons

Revenue per Ton

$ 145

Cost of Equipment

$ 2,750,000

Life(years)

5

MACRS Class

5

Fixed Cost per year

$ 475,000

Var Cost/Ton

$ 85

Actual Salvage

$ 105,000

Change in NWC

$ 85,000

Required Return

12%

Tax Rate

34%

  1. Find the cash flows for each year
  2. Net present value
  3. Payback period
  4. Discounted payback
  5. IRR
  6. MIRR

Hint:

Annual Cash Flows for Capstone Quarry

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Initial Outlay

Unit Sales

Sales

Variable Costs

Fixed Costs

Depreciation

Taxable Cash Flows

Taxes

Add: Depreciation

Annual After-Tax Cash Flow

Terminal Cash Flow

Total Annual Cash Flows

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