CH12

A project requires $2,000,000 of fixed capital investment and $150,000 of working capital investment. The project is expected to last five years and generate revenues and costs as follows:

	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Fixed capital investment	-2,000,000
Working capital investment	-150,000
Unit sales		400,000	380,000	360,000	340,000	320,000
Sales price		20	20	20	20	20
Unit variable cost of sale		8	8	8	8	8
Fixed oper. cost exclud. depreciation		200,000	200,000	200,000	200,000	200,000
Salvage value of fixed capital						300,000
Salvage value of working capital						150,000
Tax rate		15%	15%	15%	15%	15%
Straight-line depreciation		20%	20%	20%	20%	20%

Complete the following table to estimate the free cash flow. Use only numbers, no commas.

	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Sales revenue	0
The variable cost of sales	0
Gross profit	0
Less op. cost ex. dep.		200000	200000	200000	200000	200000
Depreciation						400000
EBIT
Tax					522000	486000
EBIT(1-T)		3570000				2754000
EBIT(1-T) + depreciation		3970000				3154000
Salvage value of fixed capital						300000
tax on salvage value
after-tax salvage value
Recovery of working capital						150000
Projected free cash flow	-2150000		3766000

Assume that the cost of capital is 8%. What are the projected NPV, IRR, and Payback periods?

NPV =

IRR = %

Payback =