MUST SUBMIT FORMULAS TOO

Mark is expanding a new product to help with in the construction market. His marketing manager thinks the company can sell $120,000$ units per year at a price of $$3\mathrm{.}75$ each for $3$ years, after which the product will be obsolete. The purchase price of the required equipment, including shipping and installation costs, is $$150,000,$ and the equipment is eligible for $100\%$ bonus depreciation at the time of purchase. Current assets $($receivables and inventories$)$ would increase by $$45,000,$ while curent liabilities $($accounts payable and accruals$)$ would rise by $$20,000.$ Variable cost per unit is $$1\mathrm{.}95,$ and fixed costs would be $$70,000$ per year. When production ceases after $3$ years, the equipment should have a market value of $$15,000.$Marks tax rate is $25\%,$ and it uses a $10\%$ WACC for a$.$ Find the required Year $0$ investment outlay after bonus depreciation is considered and the project's annual cash flows.

Then calculate the project's NPV$,$ IRR, MIRR, and payback. Assume at this point that the project is of average risk.

Key Output: NPV $=$

IRR $=$

MIRR $=$

Part $1.$ Key Input Data

Equipment cost plus installation $$150,000$ Market value of equipment after $3$ yrs $$15,000$

Increase in current assets $$45,000$ Tax rate $25\%$

Increase in current liabilities $$20,000$ WACC $10\%$

Unit sales $115,000$

Sales price per unit $$3\mathrm{.}75$

Variable cost per unit $60\%$

Variable cost per unit $($in dollars$)$ $$1\mathrm{.}95$

Fixed costs $$70,000$

Part $2.$ After$-$Tax Salvage Value at end of Year $3$ Equipment

Estimated Market Value

Book Value

Expected Gain or Loss

Taxes paid or tax credit

After$-$tax salvage value

Part $3.$ Project Cash Flow Analysis

$0123$

Investment Outlays at Time $=0$

CAPEX $=$ Equipment $=$ Cost $(1$ T$)$

Increase in NOWC

Operating Cash Flows over the Project's Life

Units sold

Sales price

Sales revenues

Variable costs

Fixed operating costs

Depreciation: $100\%$ Bonus Depreciation in Year $0$

EBIT $($Operating income$)$

Taxes on operating income $(25\%)$

EBIT $(1$ T$)=$ After$-$tax operating income

Add back depreciation

EBIT $(1$ T$)+$ Depreciation

Terminal Cash Flows at Time $=3$

Salvage value

Tax on salvage value

After$-$tax salvage value

Recovery of net operating working capital

Project FCFs $=$ EBIT $(1$ T$)+$ DEP $$ CAPEX $\backslash$Delta NOWC

Part $4.$ Key Output: Evaluation of the Proposed Project

Net Present Value $($at $10\%)$

IRR

MIRR$-$risk projects

MUST SUBMIT FORMULAS TOO PER ROW AS TO HOW YOU GOT THE ANSWER $($IE $-=$F$26*$$E$$7)$