Tuffy Inc is considering an expansion project. The proposed new project has the following features (use only relevant information): The project has an initial cost of $650,000--this is also the amount which can be depreciated using the following depreciation schedule (33%, 45%, 15%, 7%). If the project is undertaken, at t = 0 the company will need to increase its inventories by $55,000, and its accounts payable will rise by $20,000. This net working capital will be recovered at the end of the projects life (t = 4). If the project is undertaken, the company will realize an additional $300,000 in sales over each of the next four years (t = 1, 2, 3, 4). The companys operating cost (not including depreciation) will equal $150,000 a year. The companys tax rate is 30 percent, and the project's WACC = 11%. At t = 4, the projects economic life is complete, but it will have a salvage value of $30,000. What is the NPV of the proposed project? [Do not fill in the shaded cells!] Depreciation for your use only. Year Dep Expense Year Dep Expense 1 3 2 4 $000 0 1 2 3 4 Initial Cost Change in Net Working capital Sales - Oper. costs, excl. depr. = Gross Profit - Depreciation * = Operating income less @Taxes (30%) = After-tax income Plus: Depreciation (or D. Tx gn)* After-tax net income After-tax salvage value Return of NWC Net cash flow * Note that you may ignore the 1st Depr. and simply include the Dep. Tax gain in the 2nd. NPV = __________________ What discount rate would make the firm "break-even" on this project? _______ (hint: what discount rate makes the investment equal to the PV of the future CFs?) MIRR= _______________________ Profitability Index (PI) = _______________________________ Expansion project NPV Get the depreciation using the MACRS table provided in the question. 0 1 2 3 4 Cost (650,000) Inventory (55,000) Accounts Payable 20,000 Sales 300,000 300,000 300,000 300,000 Operating Cost (150,000) (150,000) (150,000) (150,000) Deprecition (214,500) (292,500) (97,500) (45,500) EBT (64,500) (142,500) 52,500 104,500 Tax 30% (19,350) (42,750) 15,750 31,350 NI (45,150) (99,750) 36,750 73,150 + Deprection 214,500 292,500 97,500 45,500 After-tax salvage Value 21,000 Return NWC 35,000 After-tax CF (685,000) 169,350 192,750 134,250 174,650 Note in Year 4 $35,000 of working capital is recovered plus the after tax salvage value of $21,000. Enter the cash flows into the cash flow register and solve for the NPV using the WACC of 11%. NPV = $(162,782); IRR = -0.83% MIRR= __________3.72%_________ Payback = _____________4.00__________________