The X Men Inc is a toy manufacturer The company is evaluating whether to invest in a new line of toys ( X Men II ) The company just spent $10mm renting a machine for a test run This rental cost cannot be reversed but the company will receive a $10mm discount if they decide to purchase the equipment The management came up with the following estimates for the X Men II Project The manufacturing equipment (the machine used in the test run mentioned above) has to be purchased at the beginning of the project (year 0) The cost of the equipment is $90mm, which will be depreciated using MACRS over the project's 3 year life The equipments end of life market value is $20mm Sales of X Men II toys are projected to be $100mm, 200mm, and $300mm, for years 1,2, and 3 respectively operating expenses are estimated to be 60 of sales Net working capital (NWC) needs are $10mm at the beginning of the project (year 0) Afterwards, NWC at the end of each year will be equal to 10 of sales for that year At the end of the project (i e end of year 3), all NWC will be recovered Instead of taking on the X Men II project and manufacturing selling the toys themselves, the company can simply sell the design to another company for a total of $100mm (after tax), but cannot sell later if taking this project Tax rate is 20 Its cost of capital is 10 In your answers below, clearly label year and that years cash flow (and other relevant items) in every part of the question (i) (4 pt) Show the projects sales, costs, depreciation, EBIT (earnings before interest and tax), and OCF (operating cash flow) by year (ii) (4 pt) Show cash flows associated equipment purchase and sale by year (iii) (2pt) Show cash flows associated with working capital investment by year (iv) (3 pt) (a) Are there any other cash flows that should be considered when evaluating this project If yes, show those by year (b) Calculate the total cash flows associated with the project by year (v) (2 pt) Use the NPV rule to determine whether the company should invest in the project or not

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The X-Men Inc. is a toy manufacturer. The company is evaluating whether to invest in a new line of toys (X-Men II). The company just

The X-Men Inc. is a toy manufacturer. The company is evaluating whether to invest in a new line of toys ("X-Men II"). The company just spent $10mm renting a machine for a test run. This rental cost cannot be reversed but the company will receive a $10mm discount if they decide to purchase the equipment. The management came up with the following estimates for the X-Men II Project:

The manufacturing equipment (the machine used in the test run mentioned above) has to be purchased at the beginning of the project (year 0). The cost of the equipment is $90mm, which will be depreciated using MACRS over the project's 3-year life. The equipments end-of-life market value is $20mm.
Sales of X-Men II toys are projected to be $100mm, 200mm, and $300mm, for years 1,2, and 3 respectively; operating expenses are estimated to be 60% of sales.
Net working capital (NWC) needs are $10mm at the beginning of the project (year 0). Afterwards, NWC at the end of each year will be equal to 10% of sales for that year. At the end of the project (i.e. end of year 3), all NWC will be recovered.
Instead of taking on the X-Men II project and manufacturing/selling the toys themselves, the company can simply sell the design to another company for a total of $100mm (after-tax), but cannot sell later if taking this project.
Tax rate is 20%. Its cost of capital is 10%.

In your answers below, clearly label year and that years cash flow (and other relevant items) in every part of the question.

(i) (4 pt) Show the projects sales, costs, depreciation, EBIT (earnings before interest and tax), and OCF (operating cash flow) by year.

(ii) (4 pt) Show cash flows associated equipment purchase and sale by year.

(iii) (2pt) Show cash flows associated with working capital investment by year.

(iv) (3 pt) (a) Are there any other cash flows that should be considered when evaluating this project? If yes, show those by year. (b) Calculate the total cash flows associated with the project by year.

(v) (2 pt) Use the NPV rule to determine whether the company should invest in the project or not.