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 comma 100 comma 0004,100,000

and will be depreciated using afive-year MACRS life,

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. The sales manager has an estimate for the sale of the classic Thunderbirds. The annual sales volume will be as follows:

Year one:230230		Year four:380380
Year two:280280		Year five:300300
Year three:340340

If the sales price is

$29 comma 00029,000

per car, variable costs are

$19 comma 00019,000

per car, and fixed costs are

$1 comma 400 comma 0001,400,000

annually, what is the annual operating cash flow if the tax rate is

3030%?

The equipment is sold for salvage for

$500 comma 000500,000

at the end of year five. Net working capital increases by

$500 comma 000500,000

at the beginning of the project (year 0) and is reduced back to its original level in the final year. Find the internal rate of return for the project using the incremental cash flows.

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

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

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

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

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

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

*Then, what is the incremental cash flow of the project in year 0?

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

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

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

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

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

*So what is the IRR of the project?

MACRS Fixed Annual Expense Percentages by Recovery Class Click on this icon to download the data from this table Year 3-Year 33.33% 44.45% 14.81% 7.41% 5-Year 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% 7-Year 14.29% 24.49% 17.49% 12.49% 8.93% 8.93% 8.93% 4.45% 10-Year 10.00% 18.00% 14.40% 11.52% 9.22% 7.37% 6.55% 6.55% 6.55% 6.55% 3.28%