NPV. Miglietti Restaurants is looking at a project with the following forecasted sales: first-year sales quantity of 34,000, with an annual growth rate of 4.00% over the next ten years. The sales price per unit will start at $40.00 and will grow at 2.00% per year. The production costs are expected to be 55% of the current year's sales price. The manufacturing equipment to aid this project will have a total cost (including installation) of $2,100,000. It will be depreciated using MACRS, LOADING... , and has a seven-year MACRS life classification. Fixed costs will be $360,000 per year. Miglietti Restaurants has a tax rate of 40%. What is the operating cash flow for this project over these ten years? Find the NPV of the project for Miglietti Restaurants if the manufacturing equipment can be sold for $160,000 at the end of the ten-year project and the cost of capital for this project is 8%. MACRS Fixed Annual Expense Percentages by Recovery Class Year 3-Year 5-Year 7-Year 10-Year 1 33.33% 20.00% 14.29% 10.00% 2 44.45% 32.00% 24.49% 18.00% 3 14.81% 19.20% 17.49% 14.40% 4 7.41% 11.52% 12.49% 11.52% 5 11.52% 8.93% 9.22% 6 5.76% 8.93% 7.37% 7 8.93% 6.55% 8 4.45% 6.55% 9 6.55% 10 6.55% 11 3.28% What is the operating cash flow for this project in year 1? (Round to the nearest dollar.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 20P

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NPV. Miglietti Restaurants is looking at a project with the following forecasted sales: first-year sales quantity of

34,000,

with an annual growth rate of

4.00%

over the next ten years. The sales price per unit will start at

$40.00

and will grow at

2.00%

per year. The production costs are expected to be

55%

of the current year's sales price. The manufacturing equipment to aid this project will have a total cost (including installation) of

$2,100,000.

It will be depreciated using MACRS,

and has a seven-year MACRS life classification. Fixed costs will be

$360,000

per year. Miglietti Restaurants has a tax rate of

40%.

What is the operating cash flow for this project over these ten years? Find the NPV of the project for Miglietti Restaurants if the manufacturing equipment can be sold for

$160,000

at the end of the ten-year project and the cost of capital for this project is

8%.

MACRS Fixed Annual Expense Percentages by Recovery Class

Year	3-Year	5-Year	7-Year	10-Year
1	33.33%	20.00%	14.29%	10.00%
2	44.45%	32.00%	24.49%	18.00%
3	14.81%	19.20%	17.49%	14.40%
4	7.41%	11.52%	12.49%	11.52%
5		11.52%	8.93%	9.22%
6		5.76%	8.93%	7.37%
7			8.93%	6.55%
8			4.45%	6.55%
9				6.55%
10				6.55%
11				3.28%

What is the operating cash flow for this project in year 1? (Round to the nearest dollar.)

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