Assignment 9

1. The projected costs for a new plant are given below (all numbers are in $106):
Land Cost = $7.5
Fixed Capital Investment = $120 ($60 at end of year 1, $39.60 at end of year 2, and
$20.40 at end of year 3)
Working Capital = $35 (at start-up)
Start-up at end of year 3
Revenue from sales = $52
Cost of manufacturing (without depreciation) = $18
Tax rate = 40%
Depreciation method = Current MACRS over 5 years
Length of time over which profitability is to be assessed = 10 years after
start-up
Internal rate of return = 9.5% p.a.
For this project, do the following:
a. Draw a cumulative (nondiscounted) after-tax cash flow diagram.
b. From Part (a), calculate the following nondiscounted profitability criteria
for the project:
(i) Cumulative cash position and cumulative cash ratio
(ii) Payback period
(iii) Rate of return on investment
c. Draw a cumulative (discounted) after-tax cash flow diagram.
d. From Part (c), calculate the following discounted profitability criteria for
the project:
(i) Net present value and net present value ratio
(ii) Discounted payback period
(iii) Discounted cash flow rate of return (DCFROR)