Question
MLM Corporation, has provided you the following business operations data: Items Value Equipment cost $8,750 Salvage value, equipment, Year 4 $750 Opportunity cost $0 Externalities
MLM Corporation, has provided you the following business operations data:
Items | Value |
Equipment cost | $8,750 |
Salvage value, equipment, Year 4 | $750 |
Opportunity cost | $0 |
Externalities (cannibalization) | $0 |
Units sold, Year 1 | 12,000 |
Annual change in units sold, after Year 1 | 13% |
Sales price per unit, Year 1 | $1.65 |
Annual change in sales price, after Year 1 | 3% |
Variable cost per unit (VC), Year 1 | $1.07 |
Annual change in VC, after Year 1 | 3% |
Nonvariable cost (Non-VC), Year 1 | $2,120 |
Annual change in Non-VC, after Year 1 | 2.50% |
Project cost of capital (r) | 12% |
Tax rate | 21% |
Working capital as % of next year's sales | 15% |
Moreover, they have tabulated cash flows and performance measures as shown below:
Years | 0 | 1 | 2 | 3 | 4 |
Unit sales |
| 12,000 | 13,560 | 15,323 | 17,315 |
Sales price per unit |
| $1.65 | $1.70 | $1.75 | $1.80 |
Variable cost per unit (excl. depr.) |
| $1.07 | $1.10 | $1.12 | $1.15 |
Nonvariable costs (excl. depr.) |
| $2,120 | $2,173 | $2,227 | $2,283 |
Sales revenues = Units Price/unit |
| $19,800 | $23,045 | $26,822 | $31,219 |
NOWCt = 15%(Revenuest+1) | $2,970 | $3,457 | $4,023 | $4,683 | $0 |
Basis for depreciation | $8,750 |
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Annual depreciation rate (MACRS) |
| 33.33% | 44.45% | 14.81% | 7.41% |
Annual depreciation expense |
| $2,916 | $3,889 | $1,296 | $648 |
Remaining undepreciated value |
| $5,834 | $1,944 | $648 | $0 |
As a corporate finance advisor, youre required to perform the following tasks:
1- Provide a cash flow forecast for the next four years.
2. Calculate NPV, IRR, MIRR, Profitability Index (PI), Payback, and Discounted Payback.
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