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Make sure the depreciation is a straight line and on excel :) thank you Part II Capital Budgeting Case 1: United Technologies Project Analysis United
Make sure the depreciation is a straight line and on excel :) thank you
Part II Capital Budgeting Case 1: United Technologies Project Analysis United Technologies is considering building a new manufacturing plant to produce super energy efficient Home Climate Control Systems" through its Carrier division. The project would require an initial investment in new production facilities and equipment of $400 million in 2019 would fall in the 5-year straight-line depreciation schedule. United Technologies has already spent $20 million before 2019 designing and developing these new systems and they will need additional net working capital of $50 million in 2019. The table below contains sales, sale price, variable cost & fixed cost projections over the expected life of the project. The company's marginal tax rate is 25% and this project has a cost of capital of 9.5%. Year 2020 2021 2022 2023 2024 Expected Unit Sales 100,000 120,000 130,000 135,000 130,000 Avg. Sales Price/unit $3000 $3000 $3100 $3100 $3100 Avg. Variable costs/unit $1800 $1800 $1900 $1950 $1950 Additional Fixed Costs $210.000 $215,000 $220,000 $225,000 $230,000 At the end of 2024, United Technologies will end the project and can sell their production facility & equipment for $85 million in addition to liquidating the extra net working capital that was needed at the starting of the project. Answer the following. 1. What is the initial cash flow for the project in year 2019? 2. What are the annual free cash flows for the project from year 2020 to 2024? 3. What is the project's terminal cash flow in year 2024? 4. Calculate the NPV and IRR for the project. 5. Should UTC accept this project? Explain whyStep by Step Solution
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