Estimate cash flows

Suppose Apple has decided to introduce a smart TV, the Cortland. Before they launch the Cortland, they conducted an analysis to see if the Cortland would be a desirable investment. The company estimated that it would sell 2.5 million Cortlands per year at a price of $2,200 for the next six years. The initial capital outlay is determined to be $1.9 billion and a $800 million outlay in net working capital (NWC) would also be required. Assume that there is a one-time investment in NWC and that this will be recovered at the end of the project. Assume that the equipment used will be depreciated using the MACRS 7 year schedule and that the equipment has a salvage value of zero. At the end of year 6, the equipment will be sold for its book value. Also, assume that that the tax rate is 21%.

Using information from Apples financial statements (you may want to use Morningstar.com or some other online site) estimate the operating cash flows from the project. Make any simplifying assumptions that are necessary to produce the estimate.

Pro Forma Income Statement 0 1 2 3 4 5 YEAR BACKGROUND DAYA UNIT SALES ESTIMATE VARIABLE COST PER UNIT FIXED COST PER YEAR SALES PRICE PER UNIT TAX RATE REQUIRED RETURN YR O NWC NWC % OF SALES EQUIPMENT COST - INSTALLED SALVAGE VALUE YEAR 5 % OF COST) 2,500,000 760.00 1,900,000,000.00 $ 2,200.00 21% 16.59% 800,000,000 DEPRECIATION CALCULATION DEPRECIABLE BASE MACRS % (7 YEAR PROPERTY) RECOVERY ALLOWANCE BOOK VALUE 14.29% 24.49% 17.49% 12.49% 8.92% AFTER TAX SALVAGE VALUE SALVAGE VALUE BOOK VALUE YEAR 5 CAPITLA GAIN/ LOSS TAXES NET SV INITIAL NET WORKING CAPITAL REQUIRED YEARS 1 2 3 4 5 INITIAL INVESTMENT EQUIPMENT COST SALES VARIABLE COST FIXED COST DEPRECIATION EARNINGS BEFORE TAXES TAXES NET OPERATING INCOME