DATA Cost of plant and equipment 7,900,000 Shipping and installation 100,000 Tax rate 34% Required rate of return 15% Sales Price per unit (yrs 1-4) 300 Sales Price per unit (yr 5) 260 Variable cost per unit 180 Annual fixed cost 200,000 Depreciation life 5 Section 1: Calculate EBIT Year 1 2 3 4 5 Units Sold 70,000 120,000 140,000 80,000 60,000 Sales Revenue 21,000,000 36,000,000 42,000,000 24,000,000 15,600,000 Less: Variable Costs 12,600,000 21,600,000 25,200,000 14,400,000 10,800,000 Less: Fixed Costs 200,000 200,000 200,000 200,000 200,000 Equals: EBDIT 8,200,000 14,200,000 16,600,000 9,400,000 4,600,000 Less: Depreciation 1,600,000 1,600,000 1,600,000 1,600,000 1,600,000 Equals: EBIT 6,600,000 12,600,000 15,000,000 7,800,000 3,000,000 Taxes 2,244,000 4,284,000 5,100,000 2,652,000 1,020,000 Section 2: Calculate Operating Cash Flow EBIT 6,600,000 12,600,000 15,000,000 7,800,000 3,000,000 Less: Taxes 2,244,000 4,284,000 5,100,000 2,652,000 1,020,000 Plus: Depreciation 1,600,000 1,600,000 1,600,000 1,600,000 1,600,000 Operating Cash Flow 5,956,000 9,916,000 11,500,000 6,748,000 3,580,000 Section 3: Calculate Net Working Capital Revenue: 21,000,000 36,000,000 42,000,000 24,000,000 15,600,000 Initial Working Capital Requirement 100,000 Net Working Capital Needs: 2,100,000 3,600,000 4,200,000 2,400,000 1,560,000 Liquidation of Working Capital Change in Working Capital:100,000 1,560,000 2,000,000 1,500,000 600,000 (1,800,000) (2,400,000) Section 4: Calculate Free Cash Flow Operating Cash Flow 5,956,000 9,916,000 11,500,000 6,748,000 3,580,000 Minus: Change in Net Working Capital:100,000 2,000,000 1,500,000 600,000 (1,800,000) (2,400,000) Minus: Change in Capital Spending 8,000,000 0 0 0 0 0 Free Cash Flow:(8,100,000) 3,956,000 8,416,000 10,900,000 8,548,000 5,980,000 PV= 3,440,000 6,363,705 7,166,927 4,887,347 2,973,117 NPV= IRR = 77%