inputs Equipment cost Net WC/Sales First year sales (in units Sales price per un
ID: 2655635 • Letter: I
Question
inputs Equipment cost Net WC/Sales First year sales (in units Sales price per unit Variable cost per unit Nonvariable costs Depreciation and Amortization Schedule ear Equipment Depreciation Rate Equipment Depreciation Amount Ending Bk Value Net Salvage Values, in Year 4 Estimated Market Value in Year 4 Book Value in Year 4 Expected Gain or Loss Taxes paid or tax credit Net cash flow from salvage Projected Net Cash Flows Initial outflow Equipment operating Cash Flows Units sold Sales price Variable costs Sales revenue Variable costs Nonvariable operating costs Depreciation (equipment) Oper. income before taxes (EBIT) Taxes on operating income (40%) After-tax operating income Add back depreciation operating cash flow Required level of net working capital Required investment in NWC Terminal ear Cash Flow Net salvage value Net Cash Flows NPV RR RR $6,000 10.00% 500 $24.00 $17.50 $500 Initial Cost Market value of equipment at Year 4 $250 Tax rate 40.00% WACC 10.00% Inflation 3.00% Accum ears Dep. 20.0% 32.0% 19.0% 12.0% Egu ment $250.00 $20.00 $6,000 500 5501 600 6501 00 $24.72Explanation / Answer
10% guess rate
MIRR = (Future value of cash inflows÷Present value of cash inflows)^(1/n)-1
=(11882.5÷6000)^(1/4)-1
=18.62%
Year 0 1 2 3 4 Equipment 6000 Sales 500 550 600 650 Selling price per unit 24 24.72 25.46 26.23 variable costs per unit 17.5 18.03 18.57 19.12 Sales revenue 12000 13596 15276 17049.5 Variable costs 8750 9916.5 11142 12428 Non variable operating costs (Fixed) 500 500 500 500 Depreciation 1200 1920 1140 720 EBIT 1550 1259.5 2494 3401.5 Tax 40% 620 503.8 997.6 1360.6 After tax operating income 930 755.7 1496.4 2040.9 Add: depreciation 1200 1920 1140 720 Operating cash flows 2130 2675.7 2636.4 2760.9 Net working capital required 1200 1359.6 1527.6 1704.95 Increase in working capital 1200 159.6 168 177.35 Net salvage value received (Taxation ignored) 250 working capital recovered 1704.95 Total cash flows -6000 930 2516.1 2468.4 4538.5 Present value factor 13% 1 0.885 0.783 0.693 0.613 Present value -6000.0 823.1 1970.1 1710.6 2782.1 Net present value 1285.9Related Questions
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