Your company is considering a project that will generate sales revenue of $120 million in Year 1. Revenue growth is 3% per year for subsequent years. The project requires working capital equal to 15% of sales revenue, and has total operating costs excluding depreciation equal to 51% of sales. The equipment has a 3 year MACRS life and can be purchased and installed for $106 million. The project will end in three years. At that time, the equipment can be sold for $4.5 million. Your companys tax rate is 35% and the WACC is 12%.

a) Find the initial cash flow (Yr. 0).

b) The working capital investment in the appropriate year.

c) Find the operating cash flows (Yrs. 1-3).

d) Find the after-tax cash flow from the sale of the equipment.

e) Find the total flow that occurs in Yr. 3.

MACRS Depreciation Tables 3-Year 5-Year 7-Year 10-Year 33.33% 44.44 14.82 7.41 Ownership Year 1 2. 3 4 5 6 7 8 9 10 11 20.00% 32.00 19.20 11.52 11.52 5.76 14.29% 24.49 17.49 12.49 8.93 8.92 8.93 4.46 10.00% 18.00 14.40 11.52 9.22 7.37 6.55 6.55 6.55 6.55 3.29 100.0% 100.0% 100.0% 100.0% MACRS Depreciation Tables 3-Year 5-Year 7-Year 10-Year 33.33% 44.44 14.82 7.41 Ownership Year 1 2. 3 4 5 6 7 8 9 10 11 20.00% 32.00 19.20 11.52 11.52 5.76 14.29% 24.49 17.49 12.49 8.93 8.92 8.93 4.46 10.00% 18.00 14.40 11.52 9.22 7.37 6.55 6.55 6.55 6.55 3.29 100.0% 100.0% 100.0% 100.0%