Reference no: EM132710095

Traid Corporation , a firm in the 34% marginal tax bracket with a 15% required rate of return, is considering a new project. This project involves the introduction of a new product. This project is expected to last 5 years and then because this is somewhat of a fad product, be terminated.

Given the following information:

Cost of new plant and equipment = $14,800,000
Shipping and installation cost = $200,000
Unit Sales = 120,000 per year
Sales price per unit = $300/unit in years 1-4, $250/unit for year 5
Variable cost per unit = $140/unit
Annual fix cost = $700,000

Working capital requirement:

Initial working capital = $200,000
Change in net working capital for years 1-5 = 10% of sales
(all net working capital will be liquidated at the end of 5 years)
use straight line depreciation method over 5 years. Assume plant and equipment will have zero salvage value.

Problem 1: Determine the following:

a. Net cash flow

b. The initial cash outlay (NINV)

c. The operating cash flows from year 1-4

d. The terminal cash flow year 5