FDC has decided to offer Unicorn Cookies. My mother is giving me her old oven worth $50k. FDC thinks that the new cookie will generate $300,000 in incremental sales per year. Fixed costs will be $125,000 per year, and variable costs will be approximately 30% of sales (lots of food coloring). The additional capital investment in the kitchen equipment (that will be capitalized) needed to produce the new cookies will cost $200,000 and will be depreciated in a straight-line manner for the 4 years of the cookie's life (if you think unicorn will really last that long, I seriously hope it is already over. - And, now we have working capital to think about- INVENTORY in Year O is $20k, in Year 1 is $40k, in Year 2 remains constant at $40k, in Year 3 it declines to $20k, and finally in Year 4 you have no inventory remailing. - The firm has a tax 21%. What are the cash flows?! Lay it out before you start- you get credit for this... t Time ZERO- Year 10 Year 2 Year 3 Year 4 Cash Flow from Capital Investment + + + + + + + + + + + + Inventory Level Accounts receivable Net Working Capital + + t t t + + + + + + + Cash Flow from Changes in Working Capital + + + t t + + + + + + + + t + + + + t + + + + Cash Flow from Ongoing Operations Annual Components: Revenue Fixed Expenses Variable Expenses Total Expenses Total Cash Flow from Ongoing Operations, Depreciation- Taxes After Tax Profit Operating Cash Flow t t + + + + + + t + t t t t t + t Please evaluate the cash flows for the project + + + + + NPV? t FDC has decided to offer Unicorn Cookies. My mother is giving me her old oven worth $50k. FDC thinks that the new cookie will generate $300,000 in incremental sales per year. Fixed costs will be $125,000 per year, and variable costs will be approximately 30% of sales (lots of food coloring). The additional capital investment in the kitchen equipment (that will be capitalized) needed to produce the new cookies will cost $200,000 and will be depreciated in a straight-line manner for the 4 years of the cookie's life (if you think unicorn will really last that long, I seriously hope it is already over. - And, now we have working capital to think about- INVENTORY in Year O is $20k, in Year 1 is $40k, in Year 2 remains constant at $40k, in Year 3 it declines to $20k, and finally in Year 4 you have no inventory remailing. - The firm has a tax 21%. What are the cash flows?! Lay it out before you start- you get credit for this... t Time ZERO- Year 10 Year 2 Year 3 Year 4 Cash Flow from Capital Investment + + + + + + + + + + + + Inventory Level Accounts receivable Net Working Capital + + t t t + + + + + + + Cash Flow from Changes in Working Capital + + + t t + + + + + + + + t + + + + t + + + + Cash Flow from Ongoing Operations Annual Components: Revenue Fixed Expenses Variable Expenses Total Expenses Total Cash Flow from Ongoing Operations, Depreciation- Taxes After Tax Profit Operating Cash Flow t t + + + + + + t + t t t t t + t Please evaluate the cash flows for the project + + + + + NPV? t
