We assume that the company you selected is considering a new project. The project has 11 years’ life. This project requires initial investment of $680 million to purchase equipment, and $30 million for shipping & installation fee. The fixed assets fall in the 10-year MACRS class. The salvage value of the fixed assets is 7.5% of the purchase price (including the shipping & installation fee). The number of units of the new product expected to be sold in the first year is 2,500,000 and the expected annual growth rate is 8.5%. The sales price is $260 per unit and the variable cost is $205 per unit in the first year, but they should be adjusted accordingly based on the estimated annualized inflation rate of 2.5%. The required net operating working capital (NOWC) is 10% of sales. Use the corporate tax rate obtained in Step (4) for the project. The project is assumed to have the same risk as the corporation, so you should use the WACC you obtained from prior steps as the discount rate. 

Note: you may revise the partial model in the file Build a Model.xls on the website of the textbook (also posted in this final project learning module in Blackboard) for capital budgeting analysis, but you are NOT required to strictly follow the partial model. Actually, you are encouraged to build a better model by yourself.

• Compute the depreciation basis and annual depreciation of the new project.
• Estimate annual cash flows for 11 years.
• Draw a time line of the cash flows.