I've pretty much solved the problem. However, I'd like to see this on a timeline instead of blocks.
How would you put this on a timeline?
Also, what are the steps for deriving a book value of .26?
a) year 0 Captial expenditures for equipment 1.300 networking capita 0.49 Free cash flow 1.79) years 1 to 7 Revenue 4.90 Costs 3.92 Lost rent 0.102 Deduct: Depreciation 0.13 tax @30% 0.70 Add: Depreciation 0.13 Captial expenditures networking capital Free cash flow 0.65360 year 8 Revenue 4.90 Costs 3.92 Lost rent 0.102 Deduct: Depreciation 0.13 tax @30% 0.70 Add: Depreciation 0.13 sale price of machine 0.451 tax rate 0.3 book value 0.3 add: NWC 0.47 Free cash flow 1.5293 b) nper rate pv pmt fv excel formula giver 15% (0.65360) solve 1.429 1.429a) year O Captial expenditures for equipment 1.3 networking capital =D14*0.1 10 Free cash flow =(-D8)+(-D9) 11 12 13 years 1 to 7 14 Revenue 4.9 Costs =0.8*D14 16 Lost rent 0.102 Deduct: Depreciation =D8/10 tax @30% =1-0.3 Add: Depreciation =D17 20 Captial expenditures 10 networking capital Free cash flow =(D14-D15-D16-D17)-DI year Revenue =D14 26 Costs =D15 Lost rent =D16 Deduct: Depreciation D17 29 tax @30% =D18 Add: Depreciation =D19 sale price of machine 0.451 tax rate 0.3 33 book value 0.3 34 add: NWC 0.47 35 36 Free cash flow =((D25-D26-D27-D28) *DZ 38 39 b ) nper rate PV pmt fv excel formula 40 river 0.15 =-D22 41 solve =H41 =PV(D40,C40,F40,0)+(D36/(1+D40)^C24+D10) 42 43 44 45i Help Me Solve This X Question Help Arnold Inc. is considering a proposal to manufacture high-end protein bars used as food supplements by body builders. The project requires use of an existing warehouse, which the firm acquired three years ago for $1 million and which it currently rents out for $102,000. Rental rates are not expected to change going forward. In addition to using the warehouse, the project requires an upfront investment into machines and other equipment of $1.3 million. This investment can be fully depreciated straight-line over the next 10 years for tax purposes. However, Amold Inc. expects to terminate the project at the end of eight years and to sell the machines and equipment for $451,000. Finally, the project requires an initial investment into net working capital equal to 10 percent of predicted first-year sales. Subsequently, net working capital is 10 percent of the predicted sales over the following year. Sales of protein bars are expected to be $4.9 million in the first year and to stay constant for eight years. Total manufacturing costs and operating expenses (excluding depreciation) are 80 percent of sales, and profits are taxed at 30 percent. a. What are the free cash flows of the project? b. If the cost of capital is 15%, what is the NPV of the project? In year 8 the machinery is sold so the sales price and the taxes must be accounted for. Note that the book value of the machinery is still $0.260 million when sold, and only the difference between the sale price ($0.451 million) and the book value is taxed. Also in year 8 the NWC ($0.49 million) is recovered at book value and hence its recovery is not taxed at all. The FCF for year 8 is $ 1.538 million. (Round to three decimal places.) b. If the cost of capital is 15%, what is the NPV of the project? The NPV of the project is the sum of the present values of each free cash flow, where the present value of FCF at time t is found by: Enter your answer in the answer box and then click Check Answer. All parts showing Clear All Check Answer Close
