Would like to know is I'm doing this right..........
The Sisyphean Corporation is considering investing in a new cane manufacturing machine that has an estimated life of three years. The cost of the machine is $30,000 and the machine will be depreciated straight line over its three-year life to a residual value of $0.
The cane manufacturing machine will result in sales of 2,000 canes in year 1. Sales are estimated to grow by 10% per year each year through year three. The price per cane that Sisyphean will charge its customers is $18 each and is to remain constant. The canes have a cost per unit to manufacture of $9 each.
Installation of the machine and the resulting increase in manufacturing capacity will require an increase in various net working capital accounts. It is estimated that the Sisyphean Corporation needs to hold 2% of its annual sales in cash, 4% of its annual sales in accounts receivable, 9% of its annual sales in inventory, and 6% of its annual sales in accounts payable. The firm is in the 35% tax bracket, and has a cost of capital of 10%.
First need to find
A). Calculate the total Free Cash Flows for each of the three years for the Sisyphean
Corporation's new project.
(B). What is the NPV for this project?
(C). What is the IRR for this project?
HERE IS MY ANSWER............
Straight line 30,000 is 10,000 for 3 years
Sales: year 1 = 2000*18 = 36000 year 2 36000* .10% + 36,000 = 39,600 year 3 39600 *.10 + 39600 = 43560
Cost of producing units: year 1 2000 * 9 = 18000 year 2 2000 *.10 = 200 + 2000 * 9 = 19800 year 3 2200 *.10 = 2200 + 220 * 9 = 21,780
Gross Profit: (sales – cost) year 1 18,000 year 2 19800 year 3 21780
Annual Sales in cash: 36000 * .02 = 720 year 2 39600 * .02 = 792 year 3 43560 * .02 = 871.2
Annual Sales in AR: year 1 36000 * .04 = 1440 year 2 39600 * .04 = 1584 year 3 43560 * .04 = 1742.4
Annual Sales in Inventory: year 1 is 2000 * .09 = 180 year 2 2200 * .09 = 198 year 3 2420 * .09 = 217.8
Annual Sales in Account Payable: year 1 36000 * .06 = 2160 year 2 39600 * .06 = 2376 year 3 43560 * .06 = 2613.6
Tax Bracket: year 1 18,000 * .35 = 6300 year 2 198008 * .35 = 6930 year 3 217807 * .35 = 7623
Capital Expenditures: year 1 through 3= 10000 * .10 = 1000
NWC: year 1 1440 – 2160 = -720 year 2 1584 – 2376 = -792 year 3 1742.4 – 2613.6 = -871.2
(A). Calculate the total Free Cash Flows for each of the three years for the Sisyphean
Corporation's new project.
Free Cash Flow ($000) 1 2 3
Plus Deprecation 10 10 10
Less Capital Expenditures 1 1 1
Less Increase in NWC (720) (792) (871.2)
Free Cash Flow 9720 9792 9871.2
(B). What is the NPV for this project?
NPV = 9720 * 1/(1.10) + 9792 * 1/(1.10)^2 + 9871.2 * 1/(1.10) ^ 3 = 24,345.30 + -30,000 = - 5,654.70
(C). What is the IRR for this project?
-30000
8836.36
8092.56
7416.38
0
-10%
=irr (A1:5, .1)homehelp
New Member
Posts: 2
Joined: Sat Feb 13, 2010 9:33 am
The Sisyphean Corporation is considering investing in a new cane manufacturing machine that has an estimated life of three years. The cost of the machine is $30,000 and the machine will be depreciated straight line over its three-year life to a residual value of $0.
The cane manufacturing machine will result in sales of 2,000 canes in year 1. Sales are estimated to grow by 10% per year each year through year three. The price per cane that Sisyphean will charge its customers is $18 each and is to remain constant. The canes have a cost per unit to manufacture of $9 each.
Installation of the machine and the resulting increase in manufacturing capacity will require an increase in various net working capital accounts. It is estimated that the Sisyphean Corporation needs to hold 2% of its annual sales in cash, 4% of its annual sales in accounts receivable, 9% of its annual sales in inventory, and 6% of its annual sales in accounts payable. The firm is in the 35% tax bracket, and has a cost of capital of 10%.
First need to find
A). Calculate the total Free Cash Flows for each of the three years for the Sisyphean
Corporation's new project.
(B). What is the NPV for this project?
(C). What is the IRR for this project?
HERE IS MY ANSWER............
Straight line 30,000 is 10,000 for 3 years
Sales: year 1 = 2000*18 = 36000 year 2 36000* .10% + 36,000 = 39,600 year 3 39600 *.10 + 39600 = 43560
Cost of producing units: year 1 2000 * 9 = 18000 year 2 2000 *.10 = 200 + 2000 * 9 = 19800 year 3 2200 *.10 = 2200 + 220 * 9 = 21,780
Gross Profit: (sales – cost) year 1 18,000 year 2 19800 year 3 21780
Annual Sales in cash: 36000 * .02 = 720 year 2 39600 * .02 = 792 year 3 43560 * .02 = 871.2
Annual Sales in AR: year 1 36000 * .04 = 1440 year 2 39600 * .04 = 1584 year 3 43560 * .04 = 1742.4
Annual Sales in Inventory: year 1 is 2000 * .09 = 180 year 2 2200 * .09 = 198 year 3 2420 * .09 = 217.8
Annual Sales in Account Payable: year 1 36000 * .06 = 2160 year 2 39600 * .06 = 2376 year 3 43560 * .06 = 2613.6
Tax Bracket: year 1 18,000 * .35 = 6300 year 2 198008 * .35 = 6930 year 3 217807 * .35 = 7623
Capital Expenditures: year 1 through 3= 10000 * .10 = 1000
NWC: year 1 1440 – 2160 = -720 year 2 1584 – 2376 = -792 year 3 1742.4 – 2613.6 = -871.2
(A). Calculate the total Free Cash Flows for each of the three years for the Sisyphean
Corporation's new project.
Free Cash Flow ($000) 1 2 3
Plus Deprecation 10 10 10
Less Capital Expenditures 1 1 1
Less Increase in NWC (720) (792) (871.2)
Free Cash Flow 9720 9792 9871.2
(B). What is the NPV for this project?
NPV = 9720 * 1/(1.10) + 9792 * 1/(1.10)^2 + 9871.2 * 1/(1.10) ^ 3 = 24,345.30 + -30,000 = - 5,654.70
(C). What is the IRR for this project?
-30000
8836.36
8092.56
7416.38
0
-10%
=irr (A1:5, .1)homehelp
New Member
Posts: 2
Joined: Sat Feb 13, 2010 9:33 am