Problem
Use the following data for the remaining problems.
Capstone Quarry is analyzing whether a new contract proposal will be a good idea. The relevant data is shown below. The net working capital will be paid in the same time period as the cost of the equipment and will be recovered at the end of the project.
Remember to calculate the after-tax gain or loss of salvage as part of your terminal cash flow.
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Capstone Quarry Company Contract Analysis
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Amount of Rock Salt per Year
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23,000 Tons
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Revenue per Ton
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$ 145
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Cost of Equipment
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$ 2,750,000
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Life(years)
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5
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MACRS Class
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5
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Fixed Cost per year
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$ 475,000
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Var Cost/Ton
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$ 85
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Actual Salvage
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$ 105,000
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Change in NWC
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$ 85,000
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Required Return
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12%
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Tax Rate
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34%
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1) Find the cash flows for each year
2) Net present value
3) Payback period
4) Discounted payback
5) IRR
6) MIRR
Hint:
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Annual Cash Flows for Capstone Quarry
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Year 0
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Year 1
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Year 2
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Year 3
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Year 4
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Year 5
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Initial Outlay
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Unit Sales
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Sales
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Variable Costs
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Fixed Costs
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Depreciation
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Taxable Cash Flows
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Taxes
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Add: Depreciation
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Annual After-Tax Cash Flow
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Terminal Cash Flow
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Total Annual Cash Flows
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