Proposed Project

Cost: $200,000 + $10,000 shipping + $30,000 installation. 0 1 2 3

Depreciable cost $240,000. Sales 250000 257500 265225
Economic life = 4 years. Cost 125000 128750 132612.5
Salvage value = $25,000. GM 125000 128750 132612.5
Depr 60000 60000 60000
Annual unit sales = 1,250. Dep cost 240000
Unit sales price = $200.
Unit costs = $100. EBIT 65000 68750 72612.5
Net operating working capital (NOWC) = 12% of sales. Tax@40% 26000 27500 29045
Tax rate = 40%. NOPAT 39000 41250 43567.5
Project cost of capital = 10%. WC 30000 30900 31827 32781.81
Inflation = 3% Del.WC 30000 900 927 954.81

Salvage value

CFs -270000 98100 100323 102612.7

NPV -270000 89181.82 82911.57 77094.43

84191.81
IRR -270000 79955.81 66644.22 55557.68
22.69%
-0.00317
 4
273181.8
136590.9
136590.9
60000

76590.88
30636.35
45954.53

-32781.8

15000

153736.3

105004

67842.29
Proposed Project
Cost: $200,000 + $10,000 shipping + $30,000 installation. 0 1 2 3
Depreciable cost $240,000. Sales 250000 257500 265225
Economic life = 4 years. Cost 125000 128750 132612.5
Salvage value = $25,000. GM 125000 128750 132612.5
Depr 60000 60000 60000
Annual unit sales = 1,250. Dep cost 240000
Unit sales price = $200.
Unit costs = $100. EBIT 65000 68750 72612.5
Net operating working capital (NOWC) = 12% of sales. Tax@40% 26000 27500 29045
Tax rate = 40%. NOPAT 39000 41250 43567.5
Project cost of capital = 10%. WC 30000 30900 31827 32781.81
Inflation = 3% WC recovery
Del.WC 0 900 927 954.81

Salvage value

CFs -240000 98100 100323 102612.7

NPV -240000 89181.82 82911.57 77094.43

84191.81
IRR -240000 79955.81 66644.22 55557.68
22.69%
10617.22
 4
273181.8
136590.9
136590.9
60000

76590.88
30636.35
45954.53

43923
11141.19

15000

109813.3

75003.99

48459.52