Project cash flow and NPV$.$ The managers of Classic Autos Incorporated plan to manufacture classic Thunderbirds $(1957$ replicas$).$ The necessary foundry equipment will cost a

total of $$4,200,000$ and will be depreciated using a five$-$year MACRS life, ${?}^1.$ Projected sales in annual units for the next five years are $290$ per year. If the sales price is $$26,000$

per car, variable costs are $$16,000$ per car, and fixed costs are $$1,300,000$ annually, what is the annual operating cash flow if the tax rate is $38\%?$ The equipment is sold for salvage

for $$550,000$ at the end of year five. What is the after$-$tax cash flow of the salvage? Net working capital increases by $$550,000$ at the beginning of the project $($year $0)$ and is reduced

back to its original level in the final year. What is the incremental cash flow of the project? Using a discount rate of $11\%$ for the project, determine whether the project should be

accepted or rejected according to the NPV decision model.

First, what is the annual operating cash flow of the project for year $1?$

$

$|($Round to the nearest dollar.$)$

What is the annual operating cash flow of the project for year $2?$

g

$($Round to the nearest dollar.$)$

What is the annual operating cash flow of the project for year $3?$

$q$

$|($Round to the nearest dollar.$)$

What is the annual operating cash flow of the project for year $4?$

$q$

$($Round to the nearest dollar.$)$

What is the annual operating cash flow of the project for year $5?$

$?$

$|($Round to the nearest dollar.$)$

Next, what is the after$-$tax cash flow of the equipment at disposal?

$($Round to the nearest dollar.$)$

So$,$ what is the incremental cash flow of the project in year $0?$

g

$($Round to the nearest dollar.$)$

What is the incremental cash flow of the project in year $1?$

$$

$|($Round to the nearest dollar.$)$

What is the incremental cash flow of the project in year $2?$

g

$($Round to the nearest dollar.$)$

What is the incremental cash flow of the project in year $3?$

$

$]($Round to the nearest dollar.$)$

What is the incremental cash flow of the project in year $4?$

$

$($Round to the nearest dollar.$)$

What is the incremental cash flow of the project in year $5?$

q

$($Round to the nearest dollar.$)$

Finally, what is the NPV of the project?

g

$($Round to the nearest dollar.$)$

Should the project be accepted or rejected? $($Select the best response.$)$

A$.$ The project should be accepted because the NPV is greater than zero.

B$.$ The project should be rejected because the NPV is less than zero.

$1$: Data Table

MACRS Fixed Annual Expense Percentages by Recovery Class

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