Question
Mathews Mining Company is looking at a project that has the following forecasted sales: first-year sales are 6,800 units, and sales will grow at 15%
Mathews Mining Company is looking at a project that has the following forecasted sales: first-year sales are 6,800 units, and sales will grow at 15%
over the next four years (a five-year project). The price of the product will start at $124.00 per unit and will increase each year at 5%.
The production costs are expected to be 62% of the current year's sales price. The manufacturing equipment to aid this project will have a total cost (including installation) of
$1,400,000. It will be depreciated using MACRS
Year 3-Year 5-Year 7-Year 10-Year 1 33.33% 20.00% 14.29% 10.00% 2 44.45% 32.00% 24.49% 18.00% 3 14.81% 19.20% 17.49% 14.40% 4 7.41% 11.52% 12.49% 11.52% 5 11.52% 8.93% 9.22% 6 5.76% 8.93% 7.37% 7 8.93% 6.55% 8 4.45% 6.55% 9 6.55% 10 6.55% 11 3.28%
and has a seven-year MACRS life classification. Fixed costs will be $50,000 per year. Mathews Mining has a tax rate of
30%
What is the operating cash flow for this project over these five years? Find the NPV of the project for Mathews Mining if the manufacturing equipment can be sold for
$80, 000 at the end of the five-year project and the cost of capital for this project is 12%.
What are the operating cash flows for the project in years 1 through 5?
What is the after-tax cash flow of the project at disposal?
What is the NPV of the project?
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