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(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
(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, , determine the free cash flows associated with the project, the project's net present value, the profitability index, and the internal rate of return. Apply the appropriate decision criteria. Data table a. Determine the free cash flows associated with the project. The FCF in year 0 is $ 15150000. (Round to the nearest dollar. The FCF in year 1 is $ (Round to the nearest dollar.) Cost of new plant and equipment: $14,800,000 Shipping and installation costs: $180,000 Unit sales: Year Units Sold 1 65,000 2 135,000 3 135,000 4 75,000 5 65,000 Sales price per unit: Variable cost per unit: Annual fixed costs: Working-capital requirements: The depreciation method: $330/unit in years 1 through 4, $280/unit in year 5 $160/unit $650,000 There will be an initial working capital requirement of $170,000 to get production started. For each year, the total investment in net working capital will be equal to 14 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
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