Question
Revenue and cost Estimates for the next five years Sales = 50,000 units/year (for five years) Per Unit Price = $2600 Cost Estimates for production
Revenue and cost Estimates for the next five years Sales = 50,000 units/year (for five years) Per Unit Price = $2600 Cost Estimates for production Up-Front R&D = $25,000,000 Up-Front New Equipment = $20,000,000 Expected life of the new equipment is 6 years Annual Overhead = $3,000,000 (for five years) Per Unit Cost = $1200 Tax rate: marginal tax rate of 40% Lets assume that only 70% of customers pay with cash and that Cisco only pays 70% of invoices with cash. Use the above information to create an income statement that shows net income for the next six years (years 0-6). Calculate your free cash flow for years 0-6. Calculate the NPV of this potential investment if the appropriate cost of capital is 10%.
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