Ine FCIL for a small expansion to an existing facility is MS20. The expansion wa
ID: 2568749 • Letter: I
Question
Ine FCIL for a small expansion to an existing facility is MS20. The expansion was completely bu by the end of year 0 and operating immediately thereafter. Other estimated costs of the process are listed below (MS = millions of dollars): Working Capital, WC = MS4 (at the end of year 0) COM = M$7.57 Revenue from sales, R = MS 10 Tax rate, t= 40% and discount rate, iar - 12% Depreciate with a 9.5 year IRS class life (5 year Gos) Lifetime of the project = 10 years after start-up, and start up at the beginning of year 1. Salvage value, S, at the end of the project life is assumed zero a. (8 pts) What is the present value for the annual cash flow after tax for end of year 1 assuming the GDS (MACRS) is used for depreciation? Please report to the nearest thousand dollars. b. (8 pts) What is present value for the annual cash flow after tax for end of year 6 assuming the GDs (MACRS) is used for depreciation? Please report to the nearest thousand dollars. C. (8 pts) What is present value for the annual cash flow after tax for end of year 6 if the ADS (straight line) is used for depreciation? Be careful about the years you need to depreciate over. Please report to the nearest thousand dollars.Explanation / Answer
CALCULATION OF PRESENT VALUE OF CASH FLOWS yEAR 0 1 2 3 4 5 6 revenue from operations 10 10 10 10 10 10 Less:Dep 2 2 2 2 2 2 8 8 8 8 8 8 Tax @40% 3.2 3.2 3.2 3.2 3.2 3.2 4.8 4.8 4.8 4.8 4.8 4.8 Add:Dep 2 2 2 2 2 2 Cash flows after tax 6.8 6.8 6.8 6.8 6.8 6.8 PVIF@12%, 5Years 0.892857143 0.797193878 0.711780248 0.635518078 0.567426856 0.506631121 pv 6.071428571 5.420918367 4.840105685 4.321522933 3.858502619 3.445091624 Total PV 27.9575698 Less: Cost of machine 7.57 Working capital 2.268 (4*0.567) NPV 18.1195698 a) At the end of year1=6.0714 b) At the end of 6th year=3.4451