Please help with question 5. I have attached all required tables. Thanks for your help!!!

5. What would be the net present value, NPV in this "worst case" cash flow? What will be the IRR? Instructions Cost of Capital Capital Budgeting O Type here to search o em La e Year Table 2 A B Cash from Cash outflow, Revenue in expenses in Depreciation in Taxable income Tax in Millions After tax Cash Flow In $Millions $Millions $Millions in $ Millions 27.5% rate $Millions NPV 1 $1,800 $1,728 $50.02 $21.99 $6.05 $65.95 $2.31 2 $1,900 $1,824 $85.72 $9.72 -$2.67 $78.67 $2.76 3 $2,000 $1,920 $61.22 $18.79 $5.17 $74.83 $2.63 $2,100 $2,016 $43.72 $40.29 $11.08 $72.92 $2.56 $2,200 $2,112 $31.26 $56.75 $15.60 $72.40 $2.54 $2,300 $2,208 $31.22 $60.78 $16.71 $75.29 $2.64 $2,400 $2,304 $31.26 $64.75 $17.80 $78.20 $2.74 $2,500 $2,400 $15.61 $84.39 $23.21 $76.79 $2.69 $2,600 $2,496 $104.00 $28.60 $75.40 $2.65 $2,700 $2,592 $108.00 $29.70 $78.30 $2.75 $2,600 $2,496 $104.00 $75.40 $2.65 $2,500 $2,400 $100.00 $27.50 $72.50 $2.54 $2,400 $2,304 $96.00 $26.40 $69.60 $2.44 $2,200 $2,112 $88.00 $24.20 $63.80 $2.24 Instructions Cost of Capital Capital Budgeting 10 $28.60 10mm O Type here to search Imam $2,000 $1,920 $80.00 $22.00 $58.00 $2.04 $1,800 $1,728 $72.00 $19.80 $52.20 $1.83 $1,500 $1,440 $60.00 $16.50 $43.50 $1.53 $1,200 $1,152 $48.00 $13.20 $34.80 $1.22 $800 $768 $32.00 $8.80 $23.20 $0.81 $400 $384 $16.00 $4.40 $27.60 $0.97 Table 3 NPV= $44.54 A B Tax in Millions Cash from Cash outflow, 27.5% rate in Revenue in expenses in Depreciation in Taxable income years 1, 2, 3 and After tax Cash Flow In $Millions $Millions $Millions in $ Millions 50% there after SMillions NPV 1 $1,800 $1,762.56 $50.02 -$12.57 -$3.46 $40.90 $27.27 2 $1,900 $1,860.48 $85.72 -$46.20 -$12.70 $52.22 $34.82 3 $2,000 $1,958.40 $61.22 $19.62 -$5.40 $47.00 $31.33 4 $2,100 $2,056.32 $43.72 -$0.04 -$0.02 $43.70 $29.13 5 $2,200 $2,154.24 $31.26 $14.50 $7.25 $38.51 $25.67 6 $2,300 $2,252.16 $31.22 $16.62 $8.31 $39.53 $26.35 7 $2,400 $2,350.08 $31.26 $18.67 $9.33 $40.59 $27.06 Instructions Cost of Capital Capital Budgeting 38 Year D L3 . @ e @ w O x Type here to search 968 M JUU $15.61 $0.00 $0.00 $0.00 12 N $2,448.00 $2,545.92 $2,643.84 $2,545.92 $2,448.00 $2,350.08 $2,154.24 $1,958.40 $1,762.56 $1,468.80 $1,175.04 $783.36 $391.68 $2,500 $2,600 $2,700 $2,600 $2,500 $2,400 $2,200 $2,000 $1,800 $1,500 $1,200 $800 $400 14 $36.39 $54.08 $56.16 $54.08 $52.00 $49.92 $45.76 $41.60 $37.44 $31.20 $24.96 $16.64 $8.32 $18.20 $27.04 $28.08 $27.04 $26.00 $24.96 $22.88 $20.80 $18.72 $15.60 $12.48 $8.32 $4.16 S $33.80 $22.53 $27.04 $18.03 $28.08 $18.72 $27.04 $18.03 $26.00 $17.33 $24.96 $16.64 $22.88 $15.25 $20.80 $13.87 $18.72 $12.48 $15.60 $10.40 $12.48 $8.32 $8.32 $5.55 $4.16 $2.77 NPV= $381.55 15 16 17 18 19 20 58 Depreciation in Capital Budgeting Taxable income After tax Cash Flow In Instructions Cost of Capital O Type here to search R S Year + Depreciation in Taxable income Expenses $Millions in $ Millions Taxes 1 $1,800 $1,835.25 $50.02 $85.27 2 $1,900 $1,937.21 $85.72 $122.93 3 $2,000 $2,039.17 $61.22 $100.39 $2,100 $2,141.13 $43.72 -$84.85 $2,200 $2,243.08 $31.26 -$74.34 $2,300 $2,345.04 $31.22 $76.26 $2,400 $2,447.00 $31.26 $78.26 $2,500 $2,548.96 $15.61 -$64.57 $2,600 $2,650.92 -$50.92 $2,700 $2,752.88 $52.88 $2,600 $2,650.92 -$50.92 12 $2,500 $2,548.96 -$48.96 13 $2,400 $2,447.00 -$47.00 $2,200 $2,243.08 $43.08 $2,000 $2,039.17 -$39.17 $1,800 $1,835.25 0 $35.25 Instructions Cost of Capital Capital Budgeting After tax Cash Flow In $Millions NPV -$42.64 $7.38 $4.92 -$61.46 $24.26 $16.17 -$50.19 $11.03 $7.35 -$42.42 $86.14 $57.43 -$37.17 $5.91 $3.94) -$38.13 $6.91 ($4.61) -$39.13 -$7.87 ($5.25) $32.29 -$16.68 ($11.12) -$25.46 -$25.46 ($16.97) -$26.44 -$26.44 ($17.63) -$25.46 -$25.46 ($16.97) -$24.48 -$24.48 ($16.32) -$23.50 -$23.50 ($15.67) -$21.54 $21.54 ($14.36) -$19.58 $19.58 ($13.06) -$17.63 $17.63 ($11.75) 11 O Type here to search te of LB e @ 968 Lells O Q T 17 U 18 19 M $1,500 $1,200 $800 $400 N $1,529.38 $1,223.50 $815.67 $407.83 P -$29.38 $23.50 $15.67 $7.83 $14.69 $11.75 -$7.83 -$3.92 S ($9.79) ($7.83) ($5.22) ($2.61) ($87.23) $14.69 $11.75 $7.83 $3.92 NPV= 9% 20 IRR= 10 un 98 Instructions Cost of Capital Capital Budgeting O Type here to search 7 ABCD G H I Details of McCormick Plant Proposal As you know from Project 4, McCormick & Company is considering a project that requires an initial investment of $350 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $14 million. You have been asked to refine your work to include the correct tax impact of depreciation, and the cash flow impact of working capital on the capital budget evaluation. Cash Reve $Mill. 15 16 17 18 19 The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-wear class asset. The correct depreciation table is included at the right. Year The company will need to finance some of the cash to fund $17 million in receivables and $14 million in Inventory starting at year zero. The company expects vendors to give free credit on purchases of $15 million (accounts Payable). Add the net cash outflow for working capital to the cash outflow for the plant, equipment and land in year zero. The $17 million for receivables and the $ 14 million for Inventory are cash outflows. The $15 million for receivables is a cash inflow. 3 5 Assume that this net working capital is recovered as a cash inflow in year 21. See Table 2 at the right. Instructions Cost of Capital Capital Budgeting + O Type here to search See Table 2 at the right. 24 25 The company now estimates that it can sell the land in year 21 for $40 million. It will also recover the cash spent 26 on working capital in year 21. 27 ,28 Use the WACC that you calculated in the Cost of Capital tab. 29 Questions: 17 18 1. What will be the tax depreciation each year? Note: the total deprecation of tax purposes will still be $350 million if our calculations are corrert ann Instructions Cost of Capital Capital Budgeting to 19 O Type here to search Et e L eo e o 5. What would be the net present value, NPV in this "worst case" cash flow? What will be the IRR? Instructions Cost of Capital Capital Budgeting O Type here to search o em La e Year Table 2 A B Cash from Cash outflow, Revenue in expenses in Depreciation in Taxable income Tax in Millions After tax Cash Flow In $Millions $Millions $Millions in $ Millions 27.5% rate $Millions NPV 1 $1,800 $1,728 $50.02 $21.99 $6.05 $65.95 $2.31 2 $1,900 $1,824 $85.72 $9.72 -$2.67 $78.67 $2.76 3 $2,000 $1,920 $61.22 $18.79 $5.17 $74.83 $2.63 $2,100 $2,016 $43.72 $40.29 $11.08 $72.92 $2.56 $2,200 $2,112 $31.26 $56.75 $15.60 $72.40 $2.54 $2,300 $2,208 $31.22 $60.78 $16.71 $75.29 $2.64 $2,400 $2,304 $31.26 $64.75 $17.80 $78.20 $2.74 $2,500 $2,400 $15.61 $84.39 $23.21 $76.79 $2.69 $2,600 $2,496 $104.00 $28.60 $75.40 $2.65 $2,700 $2,592 $108.00 $29.70 $78.30 $2.75 $2,600 $2,496 $104.00 $75.40 $2.65 $2,500 $2,400 $100.00 $27.50 $72.50 $2.54 $2,400 $2,304 $96.00 $26.40 $69.60 $2.44 $2,200 $2,112 $88.00 $24.20 $63.80 $2.24 Instructions Cost of Capital Capital Budgeting 10 $28.60 10mm O Type here to search Imam $2,000 $1,920 $80.00 $22.00 $58.00 $2.04 $1,800 $1,728 $72.00 $19.80 $52.20 $1.83 $1,500 $1,440 $60.00 $16.50 $43.50 $1.53 $1,200 $1,152 $48.00 $13.20 $34.80 $1.22 $800 $768 $32.00 $8.80 $23.20 $0.81 $400 $384 $16.00 $4.40 $27.60 $0.97 Table 3 NPV= $44.54 A B Tax in Millions Cash from Cash outflow, 27.5% rate in Revenue in expenses in Depreciation in Taxable income years 1, 2, 3 and After tax Cash Flow In $Millions $Millions $Millions in $ Millions 50% there after SMillions NPV 1 $1,800 $1,762.56 $50.02 -$12.57 -$3.46 $40.90 $27.27 2 $1,900 $1,860.48 $85.72 -$46.20 -$12.70 $52.22 $34.82 3 $2,000 $1,958.40 $61.22 $19.62 -$5.40 $47.00 $31.33 4 $2,100 $2,056.32 $43.72 -$0.04 -$0.02 $43.70 $29.13 5 $2,200 $2,154.24 $31.26 $14.50 $7.25 $38.51 $25.67 6 $2,300 $2,252.16 $31.22 $16.62 $8.31 $39.53 $26.35 7 $2,400 $2,350.08 $31.26 $18.67 $9.33 $40.59 $27.06 Instructions Cost of Capital Capital Budgeting 38 Year D L3 . @ e @ w O x Type here to search 968 M JUU $15.61 $0.00 $0.00 $0.00 12 N $2,448.00 $2,545.92 $2,643.84 $2,545.92 $2,448.00 $2,350.08 $2,154.24 $1,958.40 $1,762.56 $1,468.80 $1,175.04 $783.36 $391.68 $2,500 $2,600 $2,700 $2,600 $2,500 $2,400 $2,200 $2,000 $1,800 $1,500 $1,200 $800 $400 14 $36.39 $54.08 $56.16 $54.08 $52.00 $49.92 $45.76 $41.60 $37.44 $31.20 $24.96 $16.64 $8.32 $18.20 $27.04 $28.08 $27.04 $26.00 $24.96 $22.88 $20.80 $18.72 $15.60 $12.48 $8.32 $4.16 S $33.80 $22.53 $27.04 $18.03 $28.08 $18.72 $27.04 $18.03 $26.00 $17.33 $24.96 $16.64 $22.88 $15.25 $20.80 $13.87 $18.72 $12.48 $15.60 $10.40 $12.48 $8.32 $8.32 $5.55 $4.16 $2.77 NPV= $381.55 15 16 17 18 19 20 58 Depreciation in Capital Budgeting Taxable income After tax Cash Flow In Instructions Cost of Capital O Type here to search R S Year + Depreciation in Taxable income Expenses $Millions in $ Millions Taxes 1 $1,800 $1,835.25 $50.02 $85.27 2 $1,900 $1,937.21 $85.72 $122.93 3 $2,000 $2,039.17 $61.22 $100.39 $2,100 $2,141.13 $43.72 -$84.85 $2,200 $2,243.08 $31.26 -$74.34 $2,300 $2,345.04 $31.22 $76.26 $2,400 $2,447.00 $31.26 $78.26 $2,500 $2,548.96 $15.61 -$64.57 $2,600 $2,650.92 -$50.92 $2,700 $2,752.88 $52.88 $2,600 $2,650.92 -$50.92 12 $2,500 $2,548.96 -$48.96 13 $2,400 $2,447.00 -$47.00 $2,200 $2,243.08 $43.08 $2,000 $2,039.17 -$39.17 $1,800 $1,835.25 0 $35.25 Instructions Cost of Capital Capital Budgeting After tax Cash Flow In $Millions NPV -$42.64 $7.38 $4.92 -$61.46 $24.26 $16.17 -$50.19 $11.03 $7.35 -$42.42 $86.14 $57.43 -$37.17 $5.91 $3.94) -$38.13 $6.91 ($4.61) -$39.13 -$7.87 ($5.25) $32.29 -$16.68 ($11.12) -$25.46 -$25.46 ($16.97) -$26.44 -$26.44 ($17.63) -$25.46 -$25.46 ($16.97) -$24.48 -$24.48 ($16.32) -$23.50 -$23.50 ($15.67) -$21.54 $21.54 ($14.36) -$19.58 $19.58 ($13.06) -$17.63 $17.63 ($11.75) 11 O Type here to search te of LB e @ 968 Lells O Q T 17 U 18 19 M $1,500 $1,200 $800 $400 N $1,529.38 $1,223.50 $815.67 $407.83 P -$29.38 $23.50 $15.67 $7.83 $14.69 $11.75 -$7.83 -$3.92 S ($9.79) ($7.83) ($5.22) ($2.61) ($87.23) $14.69 $11.75 $7.83 $3.92 NPV= 9% 20 IRR= 10 un 98 Instructions Cost of Capital Capital Budgeting O Type here to search 7 ABCD G H I Details of McCormick Plant Proposal As you know from Project 4, McCormick & Company is considering a project that requires an initial investment of $350 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $14 million. You have been asked to refine your work to include the correct tax impact of depreciation, and the cash flow impact of working capital on the capital budget evaluation. Cash Reve $Mill. 15 16 17 18 19 The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-wear class asset. The correct depreciation table is included at the right. Year The company will need to finance some of the cash to fund $17 million in receivables and $14 million in Inventory starting at year zero. The company expects vendors to give free credit on purchases of $15 million (accounts Payable). Add the net cash outflow for working capital to the cash outflow for the plant, equipment and land in year zero. The $17 million for receivables and the $ 14 million for Inventory are cash outflows. The $15 million for receivables is a cash inflow. 3 5 Assume that this net working capital is recovered as a cash inflow in year 21. See Table 2 at the right. Instructions Cost of Capital Capital Budgeting + O Type here to search See Table 2 at the right. 24 25 The company now estimates that it can sell the land in year 21 for $40 million. It will also recover the cash spent 26 on working capital in year 21. 27 ,28 Use the WACC that you calculated in the Cost of Capital tab. 29 Questions: 17 18 1. What will be the tax depreciation each year? Note: the total deprecation of tax purposes will still be $350 million if our calculations are corrert ann Instructions Cost of Capital Capital Budgeting to 19 O Type here to search Et e L eo e o