This company has the following project alternatives, and company data

Company Data

Company WACC (discount rate)

9%

Company Tax Rate

21%

Example

Project Data

Alternative 1

Alternative 2

Alternative 3

Alternative 4

After-Tax Salvage Cash Flow

Project Type

Independent

Ending Book Value

MV - BV if positive would be a capital gain.

Equipment for project at t=0

356,000

Ending Market Val.

Capital Gain would mean tax is owed.

Installation costs at t=0

25,000

BV - MB

Company would have cash inflow of the MV and outflow of taxes

Net Working Cap. Initial Investment*

80,000

*At the end of the project all NWC borrowed from the firm will be returned to the firm (recouped)

The net would be the A.T. Salvage CF

Initial Sales

145,000

A.T. Salvage CF

Hint: MV + ( (BV-MB) *Tax Rate)

Annual Sales Growth Rates

11%

Annual Variable costs as a % of Sales

32%

Annual Fixed Costs

8,000

Project life

7

Method of Depreciation

MACRS

Expected Life of Equipment

7

Market Value at t=T

55,000

Salvage Value at t=T

n.a.

*yellow

*please show excel formulas

ro Forma & Summary of Annual til lavestment et Working Capital ther Tax Salvage Cash Flow Hint MV (BV.MB) *Tax Rate) to Forma Income Statement eve perating Expenses preciation Expenses pering Profile IN g trtle anual Operating Cash Flows mmary of the aytrack Calcolato Initial cust. CR of annual CF Alternate 2 5 24.49% 17.49% 8.94 NY MACRS Depreciation Fading Book Value ro Forma & Summary of Annual til lavestment et Working Capital ther Tax Salvage Cash Flow Hint MV (BV.MB) *Tax Rate) to Forma Income Statement eve perating Expenses preciation Expenses pering Profile IN g trtle anual Operating Cash Flows mmary of the aytrack Calcolato Initial cust. CR of annual CF Alternate 2 5 24.49% 17.49% 8.94 NY MACRS Depreciation Fading Book Value