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After-Tax Cash Flow Re-evlauation and Payback Timelines Instructions

Technologically advanced distribution equipment proposal re-evaluation

The CFO has asked you to re-evaluate the cash flow projections associated with the equipment purchase proposal due to the proposed loan agreement, and recommend whether the purchase should go forward. Table 1 shows the data and Table 2 shows projections of the cash inflows and outflows that would occur during the first eight years using the new equipment.

Keep the following in mind: Row 34 has a suggested Excel function to use. Complete all the blank cells within the tables.

I. In the Data Table:

A. Use the WACC calulated on the Cost of Capital tab

B. Calulate the loan amount with a 10% down payment

II. In the After-tax Cash Flow:

C. Complete the Depreciation Expense from Project 4 (straight line, $0 Salvage)

D. Complete the interest expense using the loan interest rate.

E. Complete the After-tax Cash Flow Table including the interest expense

F. Compute the PV, NPV1, IRR, and adjusted NPV2

III. In the Payback Timeline View:

G. Complete the discounted cash flow Payback Timeline View of Discounted Cash Flows

i) complete the timeline amounts based on the DCF (DCF is the same as PV)

ii) complete the timeline amountss for the Cummulative DCF

iii) calulate the payback period in years and months

IV. Answer the following questions:

1. What is the total depreciation for tax purposes?

2. What is the total PV of the Cash Flows using the WACC rate?

3. What is the NPV using the WACC rate?

4. What is the NPV using the alternative rate?

5. What is the IRR?

6. What is the payback period using the DCF?

7. Should the project be accepted? Why?

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