Pro-Tecc Coating Co. (Reipsic, OH) considers acquiruing new equipment to be installed in a recently added galvanizing line to meet rapidly increasing demand for the high quality galvanized steel. Mr. Rahulbhai, VP of Finance of the Pro-Tecc is not pretty sure if the new equipment would be profitable. So, Mr. Rahulbhai asks Mr. Pavan, a senior director of finance department to investigate into this decision problem. Mr. Pavan collects the following information:

*Cost of the equipment is $2,000,000.

*The equipment has an expected six-year life.

*The fixed capital will be depreciated as follows:

Year 1: 30 %, Year 2: 35%, Year 3: 20%, Year 4: 10%, Year 5: 5%, Year 6:0 %

*Incremental sales attributable to the new equipment are $1,200,000 in Year 1. They grow at a 25 percent annual rate for the next two years (i.e., years 2& 3) , and then grow at a 10 percent annual rate for the last three years (i.e., years 4,5, and 6).

*Incremental fixed cash operating expenses are $150,000 for Years 1-3 and $130,000 for Years 4-6.

*Incremental variable cash operting expenses are 45% of sales in Year 1, 40% of sales in Year 2, and 35% in Years 3-6.

*Pro-Tecc's marginal tax rate is 30 %.

*Pro-Tecc will sell the equipment for $150,000 when the project terminates.

*WACC= 12% (discount rate)

Required:

you will have to answer the following questions for Mr. Pavan.

*Calculate the cash flows for each year (Year 0-Year 6). Make sure to fill all cells in yellow and show all your calulations within the cells using the excel formula function.

*Calculate NPV of the equipment.

	year	0	1	2	3	4	5	6
Step A: Estimating Initial Cash Outflow
	Cost of "new" equipment
	Initial Cash Outflow
Step B: Calculating Interim Incremental Net Cash Flows (years 1 to 6)
	Sales		1,200,000
	Fixed cash operating expenses		(150,000)
	Variable cash operating expenses
	Depreciation expenses
	Interim Incremental Net Cash Flows
Step C: Calculating Terminal-year Incremental Net Cash Flow
	Incremental cash flow from the terminal
	year before project windup considerations
	Final salvage value of the equipment
	Tax due to sale or disposal of the equipment (tax effect of capital gain or loss)
	Terminal-year Incremental Net Cash Flow
		End of Year
		0	1	2	3	4	5	6
Incremental Net cash flows
	Net Present Value (NPV)