Please find the following:
1. Payback period
2. Net present value
3. Internal rate of return
Suppose Apple has decided to introduce a smart TV, the Cortland. Before they launch the Cortland, they conducted an analysis to see if the Cortland would be a desirable investment. The company estimated that it would sell 2.5 million Cortland's per year at a price of $2,200 for the next six years. The initial capital outlay is determined to be $1.9 billion and a $800 million outlay in net working capital (NWC) would also be required. Assume that there is a one-time investment in NWC and that this will be recovered at the end of the project. Assume that the equipment used will be depreciated using the MACRS 7 year schedule and that the equipment has a salvage value of zero. At the end of year 6, the equipment will be sold for its book value. Also, assume that that the tax rate is 21%. Pro Forma Income Statement - Apple Five Year History 2.500.000 2.2001 0 760 Particular A. Sales in Unit B. Sale price per Unit C. Variable Cost per unit D. Contribution Per Unit E. Contribution in S F. Less Fixed Cost G. Profit Before Depreciation and F. Depreciation G. Profit Before Tax H. Tax @ 21% I. Profit After Tax 2,500,000 2.2001 760 1.440 3,600,000,000.00 1,900,000,000.00 1.700.000.000.00 271,510,000.00 1 .428.490.000 299.982.900.00 .128.507,100.00 2,500,000 2.200 760 1,440 3,600,000,000.00 1.900.000.000.00 1.700,000,000.00 465,310,000.00 1.234.690.000 259.284.900.00 975,405,100.00 2.500.000 2.200 760 1.4401 3,600,000,000.00 1.900.000.000.00 1.700,000,000.00 332,310,000.00 1.367.690.000 287.214.900.00 1,080,475,100.00 1.440 3.600.000.000.00 1.900.000.000.00 1.700.000.000,00 237,310,000.00 1.462.690.000 307.164.900.00 1,155,525,100.00 2.500.000 2.2001 760 1.440 3.600.000.000.00 1.900.000.000.00 1.700,000,000.00 169,670,000.00 1.530.330.000 321,369.300.00 1,208.960.700.00 0 0 0 1 0 1.400.017,100.00 1,440,715,100.00 1,412,785,100.00 J.Annual Cash Inflow K. Sale of Equipment L. Recovery of Net Woking Capital M. Total Cash Inflow N. Initial Cash outFlow O. Net Working Capital 1.392.835.100.00 1.378,630,700.00 424,080,000 IS 800.000.000.00 1,392,835,100.00 2,178,630,700.00 1,400,017,100.00 1,440,715,100.00 1,412,785,100.00 0 1,900,000,000 800.000.000.00 (2,700,000,000.00 P. Net Cash Flow Present Valve @ 16.59% Present Vale of Cash Flow 1,400,017,100.00 0.858 1.201,214.671.80 1,440,715,100.00 0.736 1.060,366,313.60 1 1,412,785,100.00 0.631 891,467,398.10 1,392,835,100.00 0.541 753,523,789.10 2,178,630,700.00 0.464 1.010,884.644.80 -2.700.000.000 Total Present Value of Cash In Flow Total Present Value of Cash OutFlow Net Present Value 4.917,456 -2,700,000,000 7,617,456,817 Years RFR MRP CTR EO 10 1.46% 7% 21% PV IS 257.00 27,693,396.00 1.25 90,488,000.00 248,028,000.00 45,174,000.00 45,898,000.00 38,516,000.00 Volume Beta Equity Debt Common Stock P. Stock MC EW DW COE COD WACC S S 1 3 36.48298% 73% 10.20600% 3.1600% 16.187% Suppose Apple has decided to introduce a smart TV, the Cortland. Before they launch the Cortland, they conducted an analysis to see if the Cortland would be a desirable investment. The company estimated that it would sell 2.5 million Cortland's per year at a price of $2,200 for the next six years. The initial capital outlay is determined to be $1.9 billion and a $800 million outlay in net working capital (NWC) would also be required. Assume that there is a one-time investment in NWC and that this will be recovered at the end of the project. Assume that the equipment used will be depreciated using the MACRS 7 year schedule and that the equipment has a salvage value of zero. At the end of year 6, the equipment will be sold for its book value. Also, assume that that the tax rate is 21%. Pro Forma Income Statement - Apple Five Year History 2.500.000 2.2001 0 760 Particular A. Sales in Unit B. Sale price per Unit C. Variable Cost per unit D. Contribution Per Unit E. Contribution in S F. Less Fixed Cost G. Profit Before Depreciation and F. Depreciation G. Profit Before Tax H. Tax @ 21% I. Profit After Tax 2,500,000 2.2001 760 1.440 3,600,000,000.00 1,900,000,000.00 1.700.000.000.00 271,510,000.00 1 .428.490.000 299.982.900.00 .128.507,100.00 2,500,000 2.200 760 1,440 3,600,000,000.00 1.900.000.000.00 1.700,000,000.00 465,310,000.00 1.234.690.000 259.284.900.00 975,405,100.00 2.500.000 2.200 760 1.4401 3,600,000,000.00 1.900.000.000.00 1.700,000,000.00 332,310,000.00 1.367.690.000 287.214.900.00 1,080,475,100.00 1.440 3.600.000.000.00 1.900.000.000.00 1.700.000.000,00 237,310,000.00 1.462.690.000 307.164.900.00 1,155,525,100.00 2.500.000 2.2001 760 1.440 3.600.000.000.00 1.900.000.000.00 1.700,000,000.00 169,670,000.00 1.530.330.000 321,369.300.00 1,208.960.700.00 0 0 0 1 0 1.400.017,100.00 1,440,715,100.00 1,412,785,100.00 J.Annual Cash Inflow K. Sale of Equipment L. Recovery of Net Woking Capital M. Total Cash Inflow N. Initial Cash outFlow O. Net Working Capital 1.392.835.100.00 1.378,630,700.00 424,080,000 IS 800.000.000.00 1,392,835,100.00 2,178,630,700.00 1,400,017,100.00 1,440,715,100.00 1,412,785,100.00 0 1,900,000,000 800.000.000.00 (2,700,000,000.00 P. Net Cash Flow Present Valve @ 16.59% Present Vale of Cash Flow 1,400,017,100.00 0.858 1.201,214.671.80 1,440,715,100.00 0.736 1.060,366,313.60 1 1,412,785,100.00 0.631 891,467,398.10 1,392,835,100.00 0.541 753,523,789.10 2,178,630,700.00 0.464 1.010,884.644.80 -2.700.000.000 Total Present Value of Cash In Flow Total Present Value of Cash OutFlow Net Present Value 4.917,456 -2,700,000,000 7,617,456,817 Years RFR MRP CTR EO 10 1.46% 7% 21% PV IS 257.00 27,693,396.00 1.25 90,488,000.00 248,028,000.00 45,174,000.00 45,898,000.00 38,516,000.00 Volume Beta Equity Debt Common Stock P. Stock MC EW DW COE COD WACC S S 1 3 36.48298% 73% 10.20600% 3.1600% 16.187%
