We assume that the company you selected is considering a new project. The project has 8 years life. This project requires initial investment of $580 million to purchase equipment, and $30 million for shipping & installation fee. The fixed assets fall in the 7-year MACRS class.

The salvage value of the fixed assets is 10% 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 2,660,000 and the expected annual growth rate is 10.5%. The sales price is $280 per unit and the variable cost is $225 per unit in the first year, but they should be adjusted accordingly based on the estimated annualized inflation rate of 3.0%. The required net operating working capital (NOWC) is 11.8% of sales. Use the corporate tax rate obtained in Step (4) for the project.

Corporate Tax Rate = T = 35%?

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. WACC is 7.65%. Note: you may revise the partial model in the file Ch11 P18 Build a Model.xlson 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. You are encouraged to build a better model by yourself.

- Compute the depreciation basis and annual depreciation of the new project. (Please refer to Table MACRS allowances)

- Estimate annual cash flows for the 8 years.

- Draw a time line of the cash flows.