Enter the values in blue colored cells

Chapter 6
Question 21

Student Name: Riley Gombart

Course Name: FIN 425
Student ID:
Course Number:

Select the green colored cells below for tips and suggestions to complete this problem.

Assumptions
Initial investment ($000) 1,200 Enter all figures in thousands of dollars (e.g., $100,000 is entered as 100).
Resale Value year 8 400
Working Capital Investment 350
Projected working capital
(% of Sales) 10%
Yearly rental income 100
Rental Income growth rate 4%
First year sales 4,200
Sales growth rate 5%
Manufacturing costs
(% of Sales) 90%
Tax rate 35%
Cost of capital 12%
Year
0 1 2 3 4 5 6 7 8
Sales 4200.0 4410.0 4630.5 4862.0 5105.1 5360.4 5628.4 5909.8
Manufacturing Costs 3780.0 3969.0 4167.5 4375.8 4594.6 4824.3 5065.6 5318.8
Depreciation 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0
Earnings before tax 340.0 361.0 383.1 406.2 430.5 456.0 482.8 511.0
Taxes 119.0 126.4 134.1 142.2 150.7 159.6 169.0 178.8
Net Income 221.0 234.7 249.0 264.0 279.8 296.4 313.8 332.1

Working Capital 350.0 420.0 441.0 463.1 486.2 510.5 536.0 562.8 591.0
Increase in W.C. 350.0 70.0 21.0 22.1 23.2 24.3 25.5 26.8 28.1
Lost After Tax Rental Income 100.0 104.0 108.2 112.5 117.0 121.7 126.5 131.6
Initial Investment 1200
Sale of Plant 400
Tax on Sale of Plant 140

Net Cash Flows -1550.0 51.0 109.7 118.8 128.4 138.5 149.2 160.5 432.4
Present value -1550.0 45.5 87.4 84.5 81.6 78.6 75.6 72.6 174.6

Net present value = $ (849.45)

Copyright © 2011 McGraw-Hill/Irwin