Year 1 2 3 4

Cash 250,000 300,000 400,000 500,000

flow
DCF 217,391 226,843 263,006 285,877

CF 0 1,000,000
r 0.15

NPV - 6,882
 The Fleming Company, a food distributor, is con
filling line at its Oklahoma City warehouse. Th
purchased several years ago for $ 600 000. The li
200 000, and Fleming management feels it could
for $ 150 000. A new, increased capacity line can
1 200 000. Delivery and installation of the new
cost an additional $ 100 000. Assuming Fleming’
40 percent, calculate the net investment for the ne

CF0 1,200,000.00 100000 150,000 20000

-1,130,000
utor, is considering replacing a
ehouse. The existing line was
000. The line’s book value is $
ls it could be sold at this time
ty line can be purchased for $
f the new line are expected to
Fleming’s marginal tax rate is
for the new line.
1 STEP

0 1 2 3 4
Sales 10 13 13 8.666667
Cost of sales 6 7.8 7.8 5.2
selling, general and administrative expenses 2.35 3.055 3.055 2.036667
Introductory expenses 0.2
Depreciation 0.1 0.1 0.1 0.1
Profit before taxes 1.35 2.045 2.045 1.33
Taxes 0.54 0.818 0.818 0.532
Profit after taxes 0.81 1.227 1.227 0.798

Cash flow
Profit after taxes 0.81 1.227 1.227 0.798
Depreciation 0.1 0.1 0.1 0.1
Capital expenditures -0.5 0 0 0 0
Change in net working capital -2.7 -0.81 0 1.17 1.17
FCF -3.2 0.1 1.327 2.497 2.068
2 -4 STEP

Discount rate 0.2

DFCF 0.083333 0.921528 1.445023 0.997299

T 0.4
CF0 (initial investment) 3.2
5 STEP

NPV 0.9059
 5
4.333333
2.6
1.018333

0.1
0.615
0.246
0.369

0.369
0.1
0
1.17 recovery changes in NWC
1.639

0.658677
10
 new equp deli and ins sale exis eq tax NWC T0
CF0 - 700,000.00 - 50,000.00 275,000.00 - 10,000.00 - 40,000.00

0 1 2 3 4
Sales 100,000.00 100,000.00 100,000.00 100,000.00
Cost of sales -20000 -20000 -20000 -20000
Depreciation 100000 100000 100000 100000
Profit before taxes 20,000.00 20,000.00 20,000.00 20,000.00
Taxes 8,000.00 8,000.00 8,000.00 8,000.00
Profit after taxes 12,000.00 12,000.00 12,000.00 12,000.00

Cash flow
Profit after taxes 12000 12000 12000 12000
Depreciation 100000 100000 100000 100000
Capital - 525,000.00 0 0 0 0
salv val
Change in net working -10000 -10000 -10000 -10000
FCF -525000 102000 102000 102000 102000
International Foods (IFC) currently processes seafood with a unit it purchased several yea
originally cost $ 500 000 currently has a book value of $ 250 000. IFC is considering replacin
newer, more efficient one. The new unit will cost $ 700 000 and will require an additional $
installation. The new unit also will require IFC to increase its investment in initial net working
new unit will be depreciated on straight-line basis over 5 years to a zero balance. IFC expects to
275 000. IFC’s marginal tax rate is 40 percent.
If IFC purchases the new unit, annual revenues are expected to increase by $ 100 000 (due
capacity), and annual operating costs (exclusive of depreciation) are expected to decrease by $
and operating costs are expected to remain constant at this new level over the 5-year life of the p
its net working capital investment will increase by $ 10 000 per year over the life of the project. A
will be completely depreciated and its expected to be sold for $70 000 (Assume that the existing
at a rate of $ 50 000 per year).

Calculate the project’s net investment.

Calculate the annual net cash flows for the project.