1. Powder inc. is considering new project whose data are shown below. what is the projects year 1 cash flow?
Sales revenues, each year $62,500
Depreciation $8,000
Other Operating costs $25,000
Interest expense $8,000
Tax Rate 35%
2. Gabriels is thinking of opening a new warehouse, and the key date are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new warehouse. The equipment for the project would be depreciated by the straight line method. over the projects 3 year life, after which it would be worth nothing and thus it would have zero salvage value. Working capital would be increased by $125,000, and revenues and other operating costs would be constant over the projects 3 year life. (hint: Cash flow are constant in year 1-3)
WACC 10.0%
Opportunity Cost $100,000
Net equipment cost (depreciable basis) $65,000
Straight Line depreciation. rate for equipment 33.333%
Sales revenues each year $123,000
Operating costs (excl. depreciation) each year $25,000
Tax Rate 35%
a. What is the initial outlay?
b. What is the operating CF for three years?
c. What is the total CF each year?
d. What is the projects NPV and IRR?