5. STJ-MC has just designed a new product that it is considering for commerciali
ID: 2548209 • Letter: 5
Question
5. STJ-MC has just designed a new product that it is considering for commercialization. In order to manufucture the product STJ-MC is considering buying a new asset for $16,000. The asset has an 8 yer life for "book" purposes (Straight-Line-8 years and no salvage value) and for "tax purposes (MACRS-7 year life). The marketing department along with industrial engineering and corporate financial planning and analysis developed the following assumptions: r S $16,000 Year1- Sales Sales Grawth COGS % of Sales 5G&A-;% of Sales Product Launch Exp $25,000 a0% 100% 10.0% 10.0% s.0% 5.0% 0.0% 65.0% 20,0% 1,750$ 35,0% 65.0% 20.0% 64.0% 20,0% 64.0% 20,0% 640% 20,0% 630% 19.0% 630% 18.0% 65.0% 20.0% 1,750 1,000 35,0% 350% 350% 35.0% 35.0% 35.0% 35.0% A. Develop the ongoing annual EBITDA (eamings before interest, tax, depreciation, and amortization) for all 8-years using the noted assumptions. Part A does not include depreciation. r 7 Gross Income SG&A; Product Launch Part A Depreciation- Straight Line EBIT-Operaring Income Taxes Part B NOPAT Depreclation Operating Cash Floww NPV @ 10% B. Use straight-line depreciation to calculate the depreciation, the resulting Operating Income, Taxes, NOPAT, and Operating Cash Flow as well as the Net Present Value. C. Repeat this analysis using the 7-year MACRS tax depreciation rate instend of straight-line: MACRS Life (years) 14.29% 24.48% 17.49% 12 49% &93% &93% 8,93% 4.45% Start with EBITDA for all 8 years and then substitute MACRS depreciation instead of Straight- D. Reduce the tax rate to 21% for all 8 years using MACRS, Calculatet erevis dann al cashExplanation / Answer
A
Yr
0
1
2
3
4
5
6
7
8
Investment
-16000
sales = previous year sale*(1+growth rate)
25000
25000
27500
30250
33275
34938.75
36685.69
36685.69
less cost of goods sold -% of sales
16250
16250
17875
19360
21296
22360.8
23111.98
23111.98
gross income
8750
8750
9625
10890
11979
12577.95
13573.7
13573.7
less SG&A-% of sales
5000
5000
5500
6050
6655
6987.75
6970.281
6603.424
product launch expense
1750
1750
1000
EBITDA
2000
2000
3125
4840
5324
5590.2
6603.424
6970.281
B
EBITDA
2000
2000
3125
4840
5324
5590.2
6603.424
6970.281
less depreciation =16000/8 =2000
2000
2000
2000
2000
2000
2000
2000
2000
operating incomme
0
0
1125
2840
3324
3590.2
4603.424
4970.281
less taxes -35%
0
0
393.75
994
1163.4
1256.57
1611.198
1739.598
add depreciation
2000
2000
2000
2000
2000
2000
2000
2000
operating cash flow
-16000
2000
2000
2731.25
3846
4160.6
4333.63
4992.225
5230.682
present value of operating cash flow at 10% = operating cash flow/(1+r)^n
-16000
1818.1818
1652.893
2052.029
2626.87
2583.405
2446.221
2561.801
2440.152
Net present value = sum of present value of operating cash flow
2181.552
C-
year
1
2
3
4
5
6
7
8
Mcars rate
14.29%
24.49%
17.49%
12.49%
8.93%
8.93%
8.93%
4.45%
cost of machine
16000
16000
16000
16000
16000
16000
16000
16000
Annual depreication = macrs rate* cost of machine
2286.4
3918.4
2798.4
1998.4
1428.8
1428.8
1428.8
712
EBITDA
2000
2000
3125
4840
5324
5590.2
6603.424
6970.281
less depreciation =16000/8 =2000
2286.4
3918.4
2798.4
1998.4
1428.8
1428.8
1428.8
712
operating incomme
-286.4
-1918.4
326.6
2841.6
3895.2
4161.4
5174.624
6258.281
less taxes -35%
-100.24
-671.44
114.31
994.56
1363.32
1456.49
1811.118
2190.398
add depreciation
2286.4
3918.4
2798.4
1998.4
1428.8
1428.8
1428.8
712
operating cash flow
-16000
2100.24
2671.44
3010.69
3845.44
3960.68
4133.71
4792.305
4779.882
present value of operating cash flow at 10% = operating cash flow/(1+r)^n
-16000
1909.3091
2207.802
2261.976
2626.487
2459.271
2333.372
2459.21
2229.85
Net present value = sum of present value of operating cash flow
2487.277
D
EBITDA
2000
2000
3125
4840
5324
5590.2
6603.424
6970.281
less depreciation =16000/8 =2000
2286.4
3918.4
2798.4
1998.4
1428.8
1428.8
1428.8
712
operating incomme
-286.4
-1918.4
326.6
2841.6
3895.2
4161.4
5174.624
6258.281
less taxes -21%
-60.144
-402.864
68.586
596.736
817.992
873.894
1086.671
1314.239
add depreciation
2286.4
3918.4
2798.4
1998.4
1428.8
1428.8
1428.8
712
operating cash flow
-16000
2060.144
2402.864
3056.414
4243.264
4506.008
4716.306
5516.753
5656.042
present value of operating cash flow at 10% = operating cash flow/(1+r)^n
-16000
1872.8582
1985.838
2296.329
2898.206
2797.876
2662.232
2830.966
2638.585
Net present value = sum of present value of operating cash flow
3982.892
A
Yr
0
1
2
3
4
5
6
7
8
Investment
-16000
sales = previous year sale*(1+growth rate)
25000
25000
27500
30250
33275
34938.75
36685.69
36685.69
less cost of goods sold -% of sales
16250
16250
17875
19360
21296
22360.8
23111.98
23111.98
gross income
8750
8750
9625
10890
11979
12577.95
13573.7
13573.7
less SG&A-% of sales
5000
5000
5500
6050
6655
6987.75
6970.281
6603.424
product launch expense
1750
1750
1000
EBITDA
2000
2000
3125
4840
5324
5590.2
6603.424
6970.281
B
EBITDA
2000
2000
3125
4840
5324
5590.2
6603.424
6970.281
less depreciation =16000/8 =2000
2000
2000
2000
2000
2000
2000
2000
2000
operating incomme
0
0
1125
2840
3324
3590.2
4603.424
4970.281
less taxes -35%
0
0
393.75
994
1163.4
1256.57
1611.198
1739.598
add depreciation
2000
2000
2000
2000
2000
2000
2000
2000
operating cash flow
-16000
2000
2000
2731.25
3846
4160.6
4333.63
4992.225
5230.682
present value of operating cash flow at 10% = operating cash flow/(1+r)^n
-16000
1818.1818
1652.893
2052.029
2626.87
2583.405
2446.221
2561.801
2440.152
Net present value = sum of present value of operating cash flow
2181.552
C-
year
1
2
3
4
5
6
7
8
Mcars rate
14.29%
24.49%
17.49%
12.49%
8.93%
8.93%
8.93%
4.45%
cost of machine
16000
16000
16000
16000
16000
16000
16000
16000
Annual depreication = macrs rate* cost of machine
2286.4
3918.4
2798.4
1998.4
1428.8
1428.8
1428.8
712
EBITDA
2000
2000
3125
4840
5324
5590.2
6603.424
6970.281
less depreciation =16000/8 =2000
2286.4
3918.4
2798.4
1998.4
1428.8
1428.8
1428.8
712
operating incomme
-286.4
-1918.4
326.6
2841.6
3895.2
4161.4
5174.624
6258.281
less taxes -35%
-100.24
-671.44
114.31
994.56
1363.32
1456.49
1811.118
2190.398
add depreciation
2286.4
3918.4
2798.4
1998.4
1428.8
1428.8
1428.8
712
operating cash flow
-16000
2100.24
2671.44
3010.69
3845.44
3960.68
4133.71
4792.305
4779.882
present value of operating cash flow at 10% = operating cash flow/(1+r)^n
-16000
1909.3091
2207.802
2261.976
2626.487
2459.271
2333.372
2459.21
2229.85
Net present value = sum of present value of operating cash flow
2487.277
D
EBITDA
2000
2000
3125
4840
5324
5590.2
6603.424
6970.281
less depreciation =16000/8 =2000
2286.4
3918.4
2798.4
1998.4
1428.8
1428.8
1428.8
712
operating incomme
-286.4
-1918.4
326.6
2841.6
3895.2
4161.4
5174.624
6258.281
less taxes -21%
-60.144
-402.864
68.586
596.736
817.992
873.894
1086.671
1314.239
add depreciation
2286.4
3918.4
2798.4
1998.4
1428.8
1428.8
1428.8
712
operating cash flow
-16000
2060.144
2402.864
3056.414
4243.264
4506.008
4716.306
5516.753
5656.042
present value of operating cash flow at 10% = operating cash flow/(1+r)^n
-16000
1872.8582
1985.838
2296.329
2898.206
2797.876
2662.232
2830.966
2638.585
Net present value = sum of present value of operating cash flow
3982.892
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