Fin Homework 13 - SQ 12-10 These expenses will incure...

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SQ 12-10 SQ 12-12 Yes. Anticipated inflation is incorporated into the project cash flow forecast. For incorporating this into the calculatuon of projects cash flow, nominal cash flow if the project has to be estimated. Nominal cash flow has to be discounted only using nominal interest rates. Nominal interest rates are those which includes inflation as a part of it and which is used as the discounting rate. These expenses will incure whether the firm accepts or rejects the investment, and it will continue to incure. Expenses will occur whether the fuirm is going to take up the investment or not.
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Year 1 2 3 4 5 Units 70,000 100,000 140,000 70,000 60,000 Unit Price 240 240 240 240 190 Variable Cost 140 140 140 140 140 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Sales Revenue 16,800,000 24,000,000 33,600,000 16,800,000 11,400,000 Check Fig Less: Variable Costs (9,800,000) (14,000,000) (19,600,000) (9,800,000) (8,400,000) Year 1 Less Overhead (60,000) (60,000) (60,000) (60,000) (60,000) 16,800 Less Oportunity Cost
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Unformatted text preview: (250,000) (250,000) (250,000) (250,000) (250,000) Less: Fixed Costs $100,000 (300,000) (315,000) (330,750) (347,288) (364,652) Less: Depreciation (2,000,000) (2,000,000) (2,000,000) (2,000,000) (2,000,000) Net Operating Income 4,390,000 7,375,000 11,359,250 4,342,713 325,348 Less: Taxes 34% (1,492,600) (2,507,500) (3,862,145) (1,476,522) (110,618) Year 2 Net Operating Profit After Taxes (NOPAT) 2,897,400 4,867,500 7,497,105 2,866,190 214,730 4,867,500 - Plus: Depreciation $10,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 Operating Cash Flow 4,897,400 6,867,500 9,497,105 4,866,190 2,214,730 (9,900,000) Less: Increase in CAPEX (10,000,000) Less: Increase in NOWC (100,000) (1,680,000) (2,400,000) (3,360,000) (1,680,000) (9,220,000) Free Cash Flow (10,000,000) 3,217,400 4,467,500 6,137,105 3,186,190 (7,005,270) Required Rate of Return 15.0% NPV (1,450,085.65) MIRR 12.41% IRR 0.04% PI...
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  • Fall '14
  • DanBothe
  • Finance, Generally Accepted Accounting Principles

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