Reference no: EM132532808

You have been asked by the CFO of your company to assess the following project. The project requires an investment in equipment and the cost of that equipment is $300,000. The equipment has a useful life of 5 years, the same as the life of the project. The equipment is estimated to have no salvage value at the end of its useful life. Depreciation is calculated on the straight line basis and the required return on the project is 9%. The company is subject to a tax rate of 21%. The company expects to make and investment in working capital at the beginning of the project in the amount of $10,000. From the project, the company expects to sell 6,500 units in each of the 5 years. The selling price per unit will be $85. Anticipated variable costs per unit is $65. The fixed cost per year will be $45,000. Using the information above, complete the proforma income statement below by filling in the required spaces.

Sales _________

VC _________

FC _________

Depreciation _________

EBIT _________

Taxes _________

NI _________

Question 1. What is operating cash flow for each year?

Question 2. What is the amount of the total cash outflow in year zero?

Question 3. What is the amount of the total cash inflow in year 5?

Question 4. What is the NPV of the project round to the nearest dollar?

Question 5. What is the IRR of the project rounded to two decimal places?

Question 6. Should the project be accepted or rejected?