Full name: Trần Phạm Thuỳ Dương

Student ID: 11218253

Class: Advanced Accounting 63

MINICASE 2
A = Produce new product
B = No produce new product

Sale:
 Year 1 = 155,000 x 535 – 30,000 x 385 – 65,000 x (385 – 215)
 Year 2 = 165,000 x 535 – 30,000 x 385 – 35,000 x (385 – 215)
 Year 3 = 125,000 x 535
 Year 4 = 95,000 x 535
 Year 5 = 75,000 x 535

COGS = VC + FC
VC = New variable A – New variable B
 Year 1 = 155,000 x 220 + 65,000 x 145 – 95,000 x 145
 Year 2 = 165000 x 220 + 35,000 x 145 – 650,000 x 145
 Year 3 = 125000 x 220
 Year 4 = 95,000 x 220
 Year 5 = 75,000 x 220
Because the equipment follows the seven– year MACRS

Depreciation = DEP
 Year 1 = Cost of equity x 14.29%
 Year 2 = Cost of equipment x 24.49%
 Year 3 = Cost of equipment x 17.49%
 Year 4 = Cost of equipment x 12.49%
 Year 5 = Cost of equipment x 8.39%

Tax = EBT x 21%

CFFA = OPF – NWC

OPERATING CASH FLOW

Year 1 Year 2 Year 3 Year 4 Year 5
Sale 60,325,000 70,775,000 66,875,000 50,825,000 40,125,000
COGS 36,150,000 38,350,000 33,900,000 27,300,000 22,900,000
DEP 6,216,150 10,653,150 7,608,150 5,433,150 3,884,550
EBIT 17,958,850 21,771,850 25,366,850 18,091,850 13,340,450
I 0 0 0 0 0
EBT 17,958,850 21,771,850 25,366,850 18,091,850 13,340,450
TAX 3,771,358.5 4,572,088.5 5,327,038.5 3,799,288.5 2,801,494.5
NI 14,187,491.5 17,199,761.5 20,039,811.5 14292561.5 10,538,955.5
DEP 6,216,150 10,653,150 7,608,150 5,433,150 3,884,550
OCF 20,403,641.5 27,852,911.5 27,647,961.5 19,725,711.5 14,423,505.5

NET CAPITAL SPENDING

BEG 0 7,239,000 8,493,000 8,025,000 6,099,000
END 7,239,000 8,493,000 8,025,000 6,099,000 0
NWC 7,239,000 1,254,000 –468,000 –1,926,000 –6,099,000

CFFA 13,164,641.5 26,598,911.5 28,115,961.5 21,651,711.5 20,522,505.5

Book value of equipment = 43,500.000 – 6,216,150 – 10,653,150 – 7,608,150 – 5,433,150 –
3,884,550 = $9,704,850
Tax on sale of equiment = (9,704.850 – 6,500,000) x 21% = $673,018.5
Cash flow on sale equipment = 673,018.5 + 6,500,000 = $7,173,018.5

THE CASH FLOW PROJECT

Year 0 –43,500,000
Year 1 13,164,641.5
Year 2 26,598,911.5
Year 3 28,115,961.5
Year 4 21,651,711.5
Year 5 20,522,505.5
1. What is the payback period of the project?
Year 0 = –$43,500,000
43,500,000 = 13,164,641.5 + 26,598,911.5 + 3,736,447
=> Payback period = 2 + 3,736,447/28,115,961.5 = 2.14 years

2. What is the profitability index of the project?

Profitability index = (13,164,641.5/(1 + 1.12) + 26,598,911.5/(1 + 1.12)2 + 28,115,961.5/(1
+ 1.12)3 + 21,651,711.5/(1 + 1.12)4 + 20,522,505.5/(1 + 1.12)5) /43,500,000
=> Profitability index = 1.801

3. What is the IRR of the project?

NPV = 0
IRR rate = x
NPV = 0 = –43,500,000 + (13,164,641.5/(1 + x) + 26,598,911.5/(1 + x)2 + 28,115,961.5/(1
+ x)3 + 21,651,711.5/(1 + x)4 + 20,522,505.5/(1 + x)5)
=> x = IRR = 38.95%

4. What is the NPV of the project?

NPV = –43,500,000 + (13,164,641.5/(1 + 1.12) + 26,598,911.5/(1 + 1.12)2 +
28,115,961.5/(1 + 1.12)3 + 21,651,711.5/(1 + 1.12)4 + 20,522,505.5/(1 + 1.12)5)
=> NPV = $34,876,095.49