Project cash flow and NPV. The managers of Classic Autos Incorporated plan to manufacture classic Thunderbirds...

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Project cash flow and NPV. The managers of ClassicAutos Incorporated plan to manufacture classic Thunderbirds (1957replicas). The necessary foundry equipment will cost a total of$4,200,000 and will be depreciated using a five-year MACRS liferate. The sales manager has an estimate for the sale of the classicThunderbirds. The annual sales volume will be as follow:
Year one: 260 Year four: 380
Year two: 290 Year five: 300
Year three: 330

If the sales price is $30,000 per car, variable costs are $18,000per car, and fixed costs are $1,200,000 annually, what is theannual operating cash flow if the tax rate is 30%?
The equipment is sold for salvage for $500,000 at the end ofyear five. Net working capital increases by $500,000 at thebeginning of the project? (year 0) and is reduced back to itsoriginal level in the final year. Find the internal rate ofreturn for the project using the incremental cash flows. (Hint:Find the annual operating cash flow of the project for years 1-5and making an income statement)?

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3.7 Ratings (650 Votes)

Step 1Calculate Annual Operating Cash FlowsThe annual operating cash flows are determined with the use offollowing tableYear12345Sales7800000 260300008700000 290300009900000 3303000011400000 380300009000000 30030000Less Costof Goods Sold4680000 260180005220000 290180005940000 330180006840000 380180005400000 See Answer

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Project cash flow and NPV. The managers of ClassicAutos Incorporated plan to manufacture classic Thunderbirds (1957replicas). The necessary foundry equipment will cost a total of$4,200,000 and will be depreciated using a five-year MACRS liferate. The sales manager has an estimate for the sale of the classicThunderbirds. The annual sales volume will be as follow:Year one: 260 Year four: 380Year two: 290 Year five: 300Year three: 330If the sales price is $30,000 per car, variable costs are $18,000per car, and fixed costs are $1,200,000 annually, what is theannual operating cash flow if the tax rate is 30%?The equipment is sold for salvage for $500,000 at the end ofyear five. Net working capital increases by $500,000 at thebeginning of the project? (year 0) and is reduced back to itsoriginal level in the final year. Find the internal rate ofreturn for the project using the incremental cash flows. (Hint:Find the annual operating cash flow of the project for years 1-5and making an income statement)?