You are hired to see if a new project is worthwhile or not in a 5 year period. This company is considering the sale of a new product representing an increase in sales of .24% over their last year end figures. In order to do so, the company would not to invest $15,000,000 on equipment and $5,000,000 on research and development in year 0. The investment would depreciate in 7 years (use MACRS schedule). After the 5 years, only part of the investment can be sold for $5,000,000. Net working capital will be $500,000 to start and then it will be 10% of the increase in sales. (Remember that on year 5, the NWC is the recovery of all NWC the company still has or has invested in the project.)
a) Estimate the Revenues for the stand-alone (only the project and not for the whole company) for the next 5 years. After the 1st year revenues are expected to grow at a 5%/year.
b) Estimate the costs of the project.
c) Calculate the EBIT for the next 5 years for the project.
d) Calculate the company's marginal tax rate
e) Calculate operating and total cash flows