4. Please fill in Xs in Table 1. Change in NWC (net working capital) = inventories. Price + freight + installation + change in NWC = net investment outlay = project NCF (net cash flow) at year 0. Salvage value X tax rate = SV (salvage value) tax in year 4. Salvage value SV tax + recovery of NWC = termination CF (cash flow). Net op (operating) cash flow + termination CF = project NCF.

5. Press CE/C to clear 1 number on screen of Texas Instrument Ba II Plus Financial calculator. If you ever need to clear CFs (cash flows), etc. in your calculator, press 2^nd (to get yellow above key functions) +I- (1 key) (reset) ENTER (set) 2^nd CPT (quit).

Fill in Xs. Payback period of S = about 2 years, L = about 3 years. Omit MIRR.

Depreciable basis = price + freight + installation. In year 1, 2,000,000 X 33% (or 0.33) MACRS factor = 660,000 (depreciation expense). 2,000,000 660,000 = 1,340,000 end-of-year book value.

Table 1

MACRS Depr. End-of-year

Year Factor Expense Book Value

1 33% $660,000 $1,340,000

2 X X X

3 X X X

4 7 140,000 0

100% 2,000,000

See years 1 and 4 as examples in Table 1. In year 1, 50 X 100,000 = 5,000,000 3,000,000 (100,000 X 30) 660,000 - 20,000 = 1,320,000 528,000 = 792,000 + 660,000 = 1,452,000 = project NCF

Cash Flow Statements:

Year 0 Year 1 Year 2 Year 3 Year 4

Unit price $ 50 X X $ 50

Unit sales 100,000 X X 100,000

Revenues 5,000,000 X X 5,000,000

Operating costs 3,000,000 X X 3,000,000

Depreciation 660,000 X X 140,000

Other project effects 20,000 X X 20,000

Before tax income 1,320,000 X X 1,840,000

Taxes 528,000 X X 736,000

Net income 792,000 X X 1,104,000

Plus depreciation 660,000 X X 140,000

Net op cash flow 1,452,000 X X 1,244,000

Salvage value 200,000

SV tax X

Recovery of NWC X

Termination CF X

Project NCF ($-2,100,000) X X X X

========= = = = =

Example: see Project S numbers in Table 11.1 on page 390-with your financial calculator, press CF 1000 +I- (1 keystroke - to make it negative) ENTER down arrow key (I could not find a symbol) 500 ENTER down arrow key down arrow key 400 ENTER down arrow key down arrow key 300 ENTER down arrow key down arrow key 100 ENTER down arrow key down arrow key NPV 10 ENTER down arrow key CPT (textbook (not case) answer = $78.82 page 390-1) IRR CPT (answer = 14.49% - page 393). Note that case has termination cash flows in year 4, etc. - you need to make adjustments.