Net Project Cash flows

Your responses to all problems must contain the following to receive full credit:

1. Cash flow diagram of this problem is the Net Project Cash flows for all years.
2. Specify the model/equation used [e.g. P=F(1+i)-N ]
3. Specify the values of each parameter [e.g. i=0.05 or 5% ]
4. Show your work for how you calculate your numerical results.
5. For this Project Cash Flow problem: Report dollar values rounded to the nearest dollar (e.g. $253);
6. Answer the question of the problem with a complete sentence that includes your numerical justification.

Your company is considering the purchase of a new scheduling system for scheduling your manufacturing facility that will be needed for 4 years. The scheduling system costs $65,000 and installation/site preparation costs $3,000. It has an expected life of 4 years and estimated salvage value of $2,000. This is classified as a 5-year MACRS class.

The company will borrow the full amount of initial investment (i.e. scheduling system costs and installation/site preparation costs). The bank loan interest rate is 6% APR compounded annually and the company will repay the loan in 4 equal annual payments.

Expected annual savings is $23,000 due to less lost orders and better customer service due to this system.

There will be annual maintenance and update expenses of $5,000.

There is $500 working capital needed that will be fully recovered at the end of the project.

The company’s tax rate is 21%. The company’s minimum attractive rate of return is 14%

1. a) Determine this project’s cash flows over the project life.

• Use the project cash flow table available in Canvas Module “Week 10:….” to record your values.
• Show supporting calculations in detail for the following: 1. Financing activities for all years — also use the loan principal and interest table available in Canvas Module “Week 10:….” for summarizing answers for all years.
• All depreciation values
• All tax values (including all tax calculations associated with salvage).
• Additionally, for Year 1, show all “simple” calculations of Taxable income, income tax, net income, and net cash flow. You do not need to show your work for these specific calculations in other years.

1. b) Based on present worth analysis of the net cash flows from this project, is your project acceptable and state why.