(Comprehensive

problemcalculating

project cash flows, NPV, PI, and IRR)Traid Winds Corporation, a firm in the

31

percent marginal tax bracket with a required rate of return or discount rate of

10

percent, is considering a new project. This project involves the introduction of a new product. The project is expected to last

5

years and then, because this is somewhat of a fad product, it will be terminated. Given the following information,

LOADING...

,

determine the free cash flows associated with the project, the project's net present value, the profitability index, and the internal rate of return. Apply the appropriate decision criteria

Data Table 4 0 Cost of new plant and equipment Shipping and installation costs Unit sales $14,400,000 $180,000 Year 1 2 3 4 5 Units Sold 60,000 110,000 110,000 70,000 60.000 Sales price per unit Variable cost per unit Annual fixed costs Working-capital requirements $310/unit in years 1 through 4, 5260/unit in year 5 $180/unit $650,000 There will be an initial working capital requirement of $170,000 to get production started. For each year, the total investment in net working capital will be equal to 14 percent of the dollar value of sales for that year Thus the investment in working capital will increase during years 1 through 3, then decrease in year 4. Finally, all working capital is liquidated at the fermination of the project at the end of year 5 Use the simplified straight-line method over 5 years. It is assumed that the plant and equipment will have no Salvage value after 5 years The depreciation method he Print Done a 3 ** Data Table Cost of new plant and equipment Shipping and installation costs: Unit sales $14,400,000 $180,000 Year 1 2 3 4 5 Units Sold 60,000 110,000 110,000 70,000 60 000 Sales price per unit: Vanable cost per unit: Annual fixed costs Working capital requirements: $310/unit in years 1 through 4, 5260/unit in year 5 $180/unit $650,000 There will be an initial working capital requirement of $170,000 to get production started for each year, the total investment in net working capital will be equal to 14 percent of the dollar value of sales for that year Thus, the investment in working capital will increase during years 1 through 3, then decrease in year 4. Finallyall working capital is liquidated at the termination of the project at the end of year 5 Use the simplified straight-line method over 5 years it is assumed that the plant and equipment will have no salvage value after 5 years The depreciation method he Print Done a ***