Suppose these are preliminary estimates of cash flow from an expansion project:

Period $012345$

$[$EBIT$)(1-$T$)-50,00025,00025,00025,00025,00040,000$

The firm is in the $40\%$ tax bracket. Now assume that the following items were overlooked while computing the above estimates.

$1.$ Working capital requirements with and without the project are as follows:

Working Cap. Without Working Cap. With Working Cap.

Year the Project the Project

$1$ $$10,000$ $$12,000$

$2$ $$10,000$ $$13,000$

$3$ $$10,000$ $$14,000$

$4$ $$10,000$ $$14,000$

$5$ $$10,000$ $$14,000$

$2.$ The project calls for a second machine and can use an old machine the firm currently owns but does not utilize. If this machine is bought new in the market, it costs $$20,000.$ The firm can sell the old machine for $$10,000$ today. The above CF estimate assumes that this unit of machine's price will be $$0\mathrm{.}00,$ which is also the book value of this machine.

$3.$ The company spent $$30,000$ in the R&D expenses, all of which were expensed in last year's tax return.

$4.$ If the new project is implemented, the company needs to expand its facilities in $3$ years. Otherwise, the company can wait $5$ years before expanding. The cost for expansion is $$100,000$ in $3$ as well as $5$ years. The firm's cost of capital is $12\%.$

$5.$ The project will cannibalize $$5000$ annually from an existing product line for next $5$ years. Show the revised cash flow estimates below.

Period $012345$

Unrevised CF $-50,0002500025,00025,00025,00040,000$

$\backslash$Delta NWC $\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

Old Machine $\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

R&D $\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

Expansion $\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

Cannibalization $\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

Total $\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$