(Related to Checkpoint 12.1) (Comprehensive problem calculating project cash flows, NPV, PI, and IRR) Traid Winds Corporation, a firm in the 30 percent marginal tax bracket with a required rate of return or discount rate of 13 percent is considering a new project. This project involves the introduction of a new product. The project is expected to last 5 years and then, because this is somewhat of a fad product, it will be terminated. Given the following information, B , determine the free cash flows associated with the project, the project's net present value, the profitability index, and the internal rate of retum. Apply the appropriate decision criteria. a. Determine the free cash flows associated with the project. The FCF in year 0 is $ (Round to the nearest dollar.) 0 Data Table Cost of new plant and equipment: $14,000,000 Shipping and installation costs: $220,000 Unit sales: Year 1 2 3 4 5 Units Sold 60,000 115,000 115,000 70,000 60,000 Sales price per unit: Variable cost per unit: Annual fixed costs: Working-capital requirements: $320/unit in years 1 through 4, $270/unit in year 5 $120/unit $600,000 There will be an initial working capital requirement of $160,000 to get prduction started. For each year, the total investment in net working capital will be equal to 8 percent of the dollar value of sales for that year. Thus, the investment in working capital will increase during years 1 through 3, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project at the end of year 5. Use the simplified straight-line method over 5 years. It is The depreciation method: are mad thatthantant and timantell hauran Data Table Unit Sales: Year 1 OWN Units Sold 60,000 115,000 115,000 70,000 60,000 Sales price per unit: $320/unit in years 1 through 4, $270/unit in year 5 Variable cost per unit: $120/unit Annual fixed costs: $600,000 Working-capital requirements: There will be an initial working capital requirement of $160,000 to get production started. For each year, the total investment in net working capital will be equal to 8 percent of the dollar value of sales for that year. Thus, the investment in working capital will increase during years 1 through 3, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project at the end of year 5. The depreciation method: Use the simplified straight-line method over 5 years. It is assumed that the plant and equipment will have no salvage value after 5 years. (Click on the con Dolder la copy its contents into a spreadsheet.)
