Reference no: EM132958021

A company XBZ produces coats at 5.5 million units in t= 1 but knows that at t=2 and t=3 its sales will fall by 29 % for every year. Every unit is selling at t=0 for price of $ 810 / unit in t=1 AND for years t=2 and t=3 the price will fall by $ 99 for every year that follows t=1 .

• The costs that the firm experiences to produce these units amounts to $ 299 for every unit for every year. Other costs came from publicity and led to outflows/ expenses of $ 99 million per year for t=1 and 2 and 3 while in the year before t=0 the company paid for publicity $17 million.
• A year ago they paid also $ 256 million in software development WHICH will lead to LOWERING SPENDING IN t=1, t=2 and t=3 by $ 14 Million every year.
• The company got taxes at a 33% tax rate. They also invested $ 329 million in new FACTORIES AND PLANTS in t=0. Due to the passing of time every year for the 3 following years, these FACTORIES AND PLANTS value falls by $ 109.667 million (= 329 million /3 years) . WEIGHTED AVERAGE COST OF CAPITAL = 8%.
• The have inventory valued at 2203 million at t=0 .

Problem 1: Prove that the Operating profit for year 0 is 0 and then compute it for years 1, 2, 3. ?

Problem 2: what is the net present value of cash flows that the company generates over the years ?