Im on my final stretch of my course and I just want to make sure that I got everything right. Can someone double check my answers please.

• I am not 100% sure with the NPV, esp the IRR both are negative.
• Is accounts payable included in cash outflow?

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As you know from Project 4, McCormick & Company is considering a project that requires an initial investment of $350 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $14 million.

You have been asked to refine your work to includethe correct tax impact of depreciation, and the cash flow impact of working capital on the capital budget evaluation.

The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The correct depreciation table is included at the right.

The company will need to finance some of the cash to fund $17 million in receivables and $14 million in Inventory starting at year zero.The company expects vendors to give free credit on purchases of $15 million (accounts Payable). Add the net cash outflow for working capital to the cash outflow for the plant, equipment and land in year zero.The $17 million for receivables and the $14 million for Inventory are cash outflows.The $15 million for receivables is a cash inflow.

Assume that this net working capital is recovered as a cash inflow in year 21.

The company still estimates revenues and expenses the same as it did in Project 4.See Table 2 at the right.

The company now estimates that it can sell the land in year 21for $40 million.It will also recover the cash spent on working capital in year 21.

Use the WACC that you calculated in the Cost of Capital tab.

WACC 18.91%

Year 21 cash flow 56 million

1. What's the tax deprecation each year?/
2. Make an after tax cash flow timeline
3. Calculate the new NPV and IRR

. The controller is worried about tax increases and estimates that the tax rate with be raised to 50% (federal and Maryland state) in year 4.Also there is a concern that expenses are understated.He asks, "What would happen to the NPV calculation if the cash tax expenses come in 2% higher than estimated and the tax rate increases to 50% in year 4?"This will allow a subjective evaluation of the project risk.Calculate a new cash flow time line with cash expenses 10% higher than those in Table 2 and with a 50% tax rate.Use Table 3

5.Whats the NPV? IRR?

Table 1 MACRS Depreciation $350 Year 7 Year class Depreciation CO VG UT A W N 14.29% $50.02 24.49% $85.72 17.49% $61.22 49% $43.72 3.93% $31.26 3.92% $31.22 3.93% $31.26 4.46% $15.61 $350.00 Table 2 A B C D E F Cash from Cash outflow, Revenue in expenses in Depreciation in Taxable Income Tax in $Millions After tax Cash Flow In Year $Millions $Millions $Millions in $ Millions 27.5% rate $Millions $1,800 -410,000,000 $1,728 $50.02 $21.99 $6.05 $1,900 $65.95 $1,824 $85.72 -$9.72 $2.67 $2,000 $78.67 $1,920 $61.22 $18.79 $5.17 $2,100 $74.83 $2,016 $43.72 $40.29 $11.08 $2,200 $2,112 $31.26 $72.92 $56.75 $15.60 $2,300 $72.40 $2,208 $31.22 $60.78 $16.71 $75.29 $2,400 $2,304 $31.26 $64.75 $17.80 $78.20 $2,500 $2,400 $15.61 $84.39 $2,600 $23.21 $76.79 $2,496 $104.00 $28.60 $75.40 $2,700 $2,592 $108.00 $29.70 $2,600 $2,496 $78.30 $104.00 $28.60 12 $2,500 $2,400 $100.00 $75.40 $27.50 13 $2,400 $2,304 $72.50 $96.00 141 $26.40 $69.60 $2,200 $2,112 $88.00 $24.20 15 $63.80 $2,000 $1,920 $80.00 $22.00 $58.00 16 $1,800 $1,728 $72.00 $19.80 $52.20 17 $1,500 $1,440 $60.00 $16.50 18 $1,200 $43.50 $1,152 $48.00 19 $13.20 $34.80 $80 $768 $32.00 $8.80 $23.20 20 $400 $384 $16.00 21 $4.40 $11.60 Q3 56,000,000 NPV= $370,536,963 IRR -9%Q3 NPV= -$370,536,963 IRR Table 3 A B C D E F Tax in $Millions Cash from Cash outflow, 27.5% rate in years Revenue in expenses in Depreciation in Taxable Income |1, 2, 3 and 50% $Millions After tax Cash Flow In Year $Millions $Millions in $ Millions there after $Millions 0 410 Million $1,800 $1,762.56 $50.02 $12.57 $3.46 $40.90 $1,900 $1,860.48 $85.72 $46.20 $12.70 $52.22 $2,000 $1,958.40 $61.22 $19.62 $5.39 $46.99 $2,100 $2,056.32 $43.72 $0.04 $0.02 $43.70 $2,200 $2,154.24 $43.72 $2.04 $1.02 $44.74 $2,300 $2,252.16 $31.26 $16.59 $8.2 $39.55 $2,400 $2,350.08 $31.22 18.70 9.35 $2,500 $40.57 $2,448.00 $31.26 $20.75 $10.37 $2,600 $41.63 $2,545.92 $54.08 $27.04 $2,700 $2,643.84 $27.04 $56.16 $28.08 $2,600 $28.08 $2,545.92 $0.00 $54.08 $27.04 $27.04 $2,500 $2,448.00 $52.00 $2,400 $26.00 $26.00 $2,350.08 $49.92 $24.96 $2,200 $24.96 $2,154.24 $45.76 $22.88 $1,958.40 $22.88 $2,000 $41.60 $20.80 $1,800 $20.80 $1,762.56 $37.44 $18.72 $1,500 $18.72 $1,468.80 $31.20 $15.60 $15.60 $1,200 $1,175.04 $24.96 $12.48 $12.48 $80 $783.36 $16.64 $8.32 20 $8.32 $400 $391.68 $8.32 $4.16 $4.16 56 Million Q3. Land and Building 364 Million Q5 Receivables 17 Million NPV ($370,537,294.74) accounts payable 15 Million IRR -9% Inventory 14 Million Total cash outflow 410 Million Rate 7%