Business, 28.07.2021 17:40 vdirectioner7634

The information you hand to Mary shows the following: Initial investment outlay of $30 million, consisting of $25 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory); NWC recoverable in terminal year
Project and equipment life: 5 years
Sales: $25 million per year for five years
Assume gross margin of 60% (exclusive of depreciation)
Depreciation: Straight-line for tax purposes
Selling, general, and administrative expenses: 10% of sales
Tax rate: 35%
You continue your conversation.
"It looks good," says Mary. "Use this information from Luke and James to compute the cash flows for the project."
"No problem," you say.
"Then, compute NPV and IRR of the project using the Attached Excel spreadsheet I sent earlier today," says Mary. "Use the IRR financial function for the computation of IRR."
"Okay," you say. "I’ll submit my Excel file showing the computation of cash flows, NPV, and IRR by the end of week so you can look at it over the weekend."
"Thanks," says Mary.

Additional Info:
NWC Recapture is in the fifth year.
NWC is given in task list.
The discount rate is given. It is WRONG. Replace it with a 10% discount rate.
A hint: the numbers will look the same for all five years, except for the total cash flow. Year 5 will be different due to NWC recovery.
Sales are given (This is also called Revenue)
Gross margin is given
Calculate: COGS (You must find the equation that gives you COGS from gross margin and sales (revenue))
Subtract from Sales
Calculate
SGA expense
Subtract these from Sales
This gives Gross Profit.
Calculate yearly depreciation, straight line for tax purposes, look this up.
Subtract this from Gross Profit.
This gives EBT, Earnigs Before Taxes
Calculate Taxes on basis of EBT, tax rate is given.
Subtract this from EBT
This gives Net Income
Add Depreciation back in to Net Income
Add NWC recovery to Net Income in the 5th year.
This gives a Cashflow for each year.
Put this into your spreadsheet. The NPV and IRR should calculate automatically. If it does not you have made a mistake.

Answers: 2

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