X Arial 14 v ' ' > Genera Paste BI U v = = = v 1 Xv fx P12-14 Modified (use the template below for problem setup) D A D E F P12-14 Modified (use the template below for problem setup) As part of its planning for the coming Christmas season, Criswell Motorsports is considering whether to expand its product line that currently consists of skateboards to include electric-powered skateboards. The company feels it can sell 3,500 of these per year for 10 years (after which time this project is expected to shut down, with solar-powered skateboards taking over). Each electric-powered skateboard would have variable costs of $225 and sell for $395; annual fixed costs associated with production would be $435,000. In addition, there would be a $800,000 initial expenditure associated with the purchase of new production equipment. It is assumed that 3 the simplified straight-line method would be used to depreciate this initial expenditure down to zero over 10 years. The project would also require a one-time initial investment of $250,000 in net working capital associated with inventory, and this working-capital investment would be recovered when the project is shut down. Finally, assume that the firms's marginal tax rate is 26%. 20 a. What is the initial cash outlay associated with this project? 11 b. What are the annual net cash flows associated with this project for years 1-9? 2 c. What is the terminal cash flow in year 10 (that is, what is the free cash flow in year 10 plus any additional cash flows associated 33 with the termination of the project?) 14 d. What is the projects NPV given a 12% required rate of return? 15 16 17 18 INPUTS (in Blue): 19 Tax Rate 20 Required Rate of Return 21 Years 22 Cost of the New Equipment 23 Initial Working Capital 24 Annual Units Sold 25 Sale Price per unit 26 Variable cost per unit 27 Annual fixed costs 28 29 Year 2 - 30 Units Sold 31 Sale Price 32 Variable Cost/Unit Q12-7 Q12-8 P12-2 P12-6 P12-8 P12-12M Q12-11 Q12-15 0 3 4 It PI Caibri (Body 12 - ' ' == het Currency $% % WE BIU Dette Conditional Format Ced Formatting as Table Styles Sort & Format Fins Sele H39 xfx D 0 2 3 4 5 10 IS INPUTS in 19 Tax Rate 29 Required Rate of Retum Er 21 Years 22 Cast ef the New Equipment 23 India Working Capital 36 Annual Units Sold 25 Sale Price per unit 1 Variable con perunt HnAnual feed costs 20:28 32 329 Year 30 Units Sold 31 Sale Price 9. Variable con un apita Ana Fred Cost B2 3 4 Depreciation Me 35 F 16 Step 1 Galuate Net Operating Cash Flows 3 Sales 38 Variable costs pg. 1-3 Fixed costs and 4 Depreciation 412 Net Opeeting Income Tanes N Operating Income here Depreciation 431 Sup. Calculate Working Capital Requirements Net 012-7 012-3 P12-2 P12-8 012-11 012.15 P12-26 P12-12M P12-14M P12 16M P1323M P12-6 O So to meet the needs of the firm for working capital in Year 1. Crockett must invest $78,000 pg19 S AW MacBook Air Format D 4 Depreciation Rate 33 1 3 Step 1: Calculate Net Operating Cash Flows Cre 17 Sales Revenue OC 38 Variable Costs ned costs Depreciation 41 Net Operating Income 42 essa Taxes HDperating income after taxes Etus: Depreciation 3 45 Operating Cash Flow 45 47 Step 2. Calculate Working Capital (WC) Requirements Working Capital (WC) Requirements aita 34 50 Step 3: Calculate Capital Expenditure (CAPEX) Requirements 51 Capital Expenditure (CAPEX Requirements 53 Step 4: Calculate Free Cash Flow 1-7 54 Free Cash Flow 8455 96 58 59 60 61 1-5 31 to pl 012-7 Q12-8 P12-2 P12-6 P12-8 P12-12M 012-11 012-15 P12-14M P12-15M P12-23M P12-25 1-9 4057 So to meet the needs of the firm for working capital in Year 1. Crockett must invest $78,00 s SAW MacBook Air
