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G The Shome Corporation is considering a new project that ivolves the introduction of a new product. The firm in in the 34 percent marginal tax bracket and has a 15 percent required rate of returm or discount rate for new investments. This project is expected to last five years, and then, because this is somewhat of a fad project, it will be terminated. Given the following information, determine the net cash flows associated with the project and the project's NPV,. profitability index, and internal rate of return. Apply the appropriate decision criteria. Cost of new plant and equipment: $6,900,000 Shipping and installation costs: Sales price per unit: $250/unit in Years 1-4, $200/unit in Year 5 Variable cost per unit: $130it Annual fixed costs: $300,000 Working capital requirements: There will be an initial working capital requirement of $100,000 just to get production started. For each year, the total investment in net working capital will be equal to 10 percent of the dollar value of sales for that year. Thus, the investment in working capital will increase during Years 1 through 3, then decrease in Year 4. Finally,, all working capital is liquidated at the termination of the project at the end of Year 5 The depreciation method: Use the simplified straight-line method over five years. It is assumed that the plant and equipment will have no salvage value after five years $ 100,000 Complete the steps below using cell references to given data or previous calculations. In some cases, a simple cell reference is all you need. To copy/paste a formula across a row or down a column, an absolute cell reference or a mixed cell reference may be preferred. If a specific Excel function is to be used, the directions will specify the use of that function. Do not type in numerical data into a cell or function. Instead, make a reference to the cell in which the data is found. Make your computations only in the green cells highlighted below. In all cases, unless otherwise directed, use the earliest appearance of the data in your formulas, usually the Given Data section. Given data: ($6,900,000.00) Initial capital expenditure 12-24 Type here to search a Oo 15 percent required rate of return or discount rate for project, it will be terminated. Given the following infor A C Given data: 5 (S6,900,000.00) ($100,000.00) Initial capital expenditure Shipping and installation costs Life of the initial expenditure Marginal tax rate 6 7 5 34.00% Discount rate 15.00% 10 Net working capital (% of Sales) Net working capital investment (0) Fixed costs per year 10.00% 11 ($100,000.00) 12 (S300,000.00) 13 Sales price (1-4) Sales price (5) Variable cost of product $250.00 14 $200.00 15 ($130.00) 16 17 Year 0 Year 18 Units sold 19 $20,000, ($10,400, (S300, Revenues 20 Variable costs 21 Fixed costs 22 12-24 G Fixed costs per year Sales price (1-4) Sales price (5) Variable cost of product ($300,000.00) 13 14 $250,00 15 $200.00 16 ($130.00) 17 18 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Units sold 70,000 120,000 70,000 $17,500,000.00 19 s0,000 100,000 S25,000,000.00 Revenues $20,000,000.00 $30,000,000.00 $14,000,000.00 20 ($10,400,000.00) (S13,000,000.00) ($15,600,000.00) (S9,100,000.00) (S9,100,000.00) ($300,000.00) $14,100,000.00 Variable costs Fixed costs Gross profit Depreciation Net opearting income Income taxes 21 ($300,000.00) $8,100,000.00 ($1,400,000.00) ($1,400,000.00) $6,700,000.00 (S2,278,000.00) $4.422,000.00 $5,822,000.00 ($300,000.00) ($300,000.00) S9,300,000.00 (S1,400,000.00) $7,900,000.00 (S2,686,000.00) S5,214,000.00 ($300,000.00) 22 $11,700,000.00 $4,600,000.00 23 ($1,400,000.00) $3,200,000.00 ($1.400,000.00) 24 $10,300,000.00 $12,700,000.00 25 ($3,502,000.00) $6,798,000.00 ($4,318,000.00) $8,382,000.00 ($1,088,000.00) $2,112,000.00 26 Net income 27 $3,512,000.00 $6,614.000.00 $8,198,000.00 S9,782.000,.00 28 Cash flow 29 Additional net working capital Capital expenditure 30 31 32 33 Free cash flow 34 NPV 35 Profitability Indes 36 IRR 37 G Fixed costs per year Sales price (1-4) Sales price (5) Variable cost of product ($300,000.00) 13 14 $250,00 15 $200.00 16 ($130.00) 17 18 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Units sold 70,000 120,000 70,000 $17,500,000.00 19 s0,000 100,000 S25,000,000.00 Revenues $20,000,000.00 $30,000,000.00 $14,000,000.00 20 ($10,400,000.00) (S13,000,000.00) ($15,600,000.00) (S9,100,000.00) (S9,100,000.00) ($300,000.00) $14,100,000.00 Variable costs Fixed costs Gross profit Depreciation Net opearting income Income taxes 21 ($300,000.00) $8,100,000.00 ($1,400,000.00) ($1,400,000.00) $6,700,000.00 (S2,278,000.00) $4.422,000.00 $5,822,000.00 ($300,000.00) ($300,000.00) S9,300,000.00 (S1,400,000.00) $7,900,000.00 (S2,686,000.00) S5,214,000.00 ($300,000.00) 22 $11,700,000.00 $4,600,000.00 23 ($1,400,000.00) $3,200,000.00 ($1.400,000.00) 24 $10,300,000.00 $12,700,000.00 25 ($3,502,000.00) $6,798,000.00 ($4,318,000.00) $8,382,000.00 ($1,088,000.00) $2,112,000.00 26 Net income 27 $3,512,000.00 $6,614.000.00 $8,198,000.00 S9,782.000,.00 28 Cash flow 29 Additional net working capital Capital expenditure 30 31 32 33 Free cash flow 34 NPV 35 Profitability Indes 36 IRR 37

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