Garca and Martinez manufacture widgets and currently have $25 million in taxable income. The company recently spent $750,000 to put together a bid for a government contract, and this morning they were notified that they won the contract. The contract requires the firm to provide 70,000 widgets a year for 6 years, and the government will pay $30 for each widget. To satisfy the new contract, Garca and Martinez estimate they will need an additional $5,000,000 worth of machinery. The machinery costs $150,000 a year to operate and maintain. The machinerys depreciable life is 7-years, and the company expects to salvage the machinery for $60,000 at the end of year 6. If the project is accepted, the company will immediately increase inventory by $500,000 and maintain the new inventory level over the projects life. Similarly, the company will immediately add $50,000 to their cash balance and maintain that higher cash balance over the projects life. The investments in cash and inventory will be recovered when the project is completed. The marginal cost of producing a widget is $6.00 and the cost of capital is 14%. Calculate the projects NPV by linking to the information/variable values in Column K.

E Define Name 15 / + Trace Precedents ** Trace Dependents Show Remove Arrows' Formula Insert Function AutoSum Recently Financial Logical Used Text Date & Time Lookup & Math & Reference Trig More Functions Create from Selection D30 x fx D K L M N O Period 0 Period 1 Period 2 Period 3 Period 4 Period Pued 6 ### Infurmandibles # ## Company's Other Taxable income $30.00 Price per unit Revenues Variable Costs Fixed Costs/Expenses EBITDA Depreciation PBIT Taxes OCF Change NWC Net Capital Spending CFFA PV (CFFAI Marginal Tax Rate NPV Decision Units Sold I 50000 35000 60000 65000 70000 75000 80000 85000 Taxable income $ 50,000 50,000.00 $ 75.000 75,000.00 $ 100.000 100,000.00 $ 335.000 335.000.00 **** # # *# 10.000.000.00 H 15.000.000.00 MENAWNAW H 18.33.313.00 Ahave $18,333,333 15% 25% 34% 39% 34% 35% 38% 35% Change in NPV with Immediate Expensing Note: Corporate taxes are now tlal at 21%. I have kept the old comporte tax table in this example to illustrate the VLOOKUP HLOOKUP function. In addition, personal taxes are still based on similar tables, as are state corporate taxes