The project lasts four years. Initial investment is 10000; tax is 35%, required return 16.000%, terminal sale proceeds 3200. Initial NWC is zero; all NWC is recovered at completion. Past feasibility spending is sunk.

Closing receivables and payables equal 30% of current-year sales and purchases. Inventory balances accumulate the changes shown, beginning at zero; these balances determine NWC before final liquidation.

1. A.Reconstruct the cash flows from the accounting forecasts and calculate NPV.

The project lasts four years. Initial investment is 12500; tax is 35%, required return 15.000%, terminal sale proceeds 4500. Initial NWC is zero; all NWC is recovered at completion. Past feasibility spending is sunk.

Closing NWC equals 20% of the following year’s revenue in years 1–3. The exercise explicitly specifies zero initial NWC.

1. A.Reconstruct the cash flows from the accounting forecasts and calculate NPV.

New delivery equipment costs €1 million today, lasts four years and is depreciated fully over those four years. It saves €400,000 annually but requires €50,000 of annual maintenance. At year 4 it is sold for €40,000. The tax rate is 30% and the required return is 10%.

At the end of year 1, the equipment releases €100,000 of NWC. That reduction is reversed at the end of year 4.

1. A.Calculate the annual operating cash flow.
2. B.Calculate NPV including NWC and disposal.

Initial equipment investment is 5,000.00. The project lasts 10 years. The tax rate is 40.000%, required return 10.000% and terminal sale proceeds 1,000.00. Initial working capital is 0.00. Amounts are in thousands of Swiss francs. The previously paid 2,000 is sunk. No current sale or alternative-use value for that land is supplied; assume none for this calculation. NWC is funded at each year-end and released in year 10.

1. A.Build the incremental cash-flow schedule and calculate NPV.

Initial equipment investment is 12,000.00. The project lasts 5 years. The tax rate is 40.000%, required return 9.500% and terminal sale proceeds 5,000.00. Initial working capital is 0.00. Previously paid research of 12,000 is sunk. Annual foregone rent of 9,000 is included in cash operating costs. NWC is funded at year-end and released at completion.

1. A.Build the incremental cash-flow schedule and calculate NPV.

Initial equipment investment is 50,000.00. The project lasts 5 years. The tax rate is 35.000%, required return 9.000% and terminal sale proceeds 5,000.00. Initial working capital is 5,000.00. Cash costs include marketing of 8,000, 6,000, 4,000, 2,000 and 0. A one-off operating loss of 1,000 occurs at time 0. Assuming an immediately usable 35% tax deduction, its after-tax cash cost is 650. NWC funds 10% of next-year revenue from time 0.

1. A.Build the incremental cash-flow schedule and calculate NPV.

Initial equipment investment is 1,500,000.00. The project lasts 3 years. The tax rate is 30.000%, required return 15.000% and terminal sale proceeds 500,000.00. Initial working capital is 480,000.00. Historical warehouse cost of 1 million is sunk. Cash costs include annual rent foregone of 120,000. NWC funds 10% of next-year revenue from time 0.

1. A.Build the incremental cash-flow schedule and calculate NPV.
2. B.Calculate the undiscounted payback period.

Initial equipment investment is 800,000.00. The project lasts 4 years. The tax rate is 30.000%, required return 14.000% and terminal sale proceeds 100,000.00. Initial working capital is 0.00. The non-refundable deposit of 200,000 paid last year is sunk. Only the remaining 800,000 is invested and depreciated. The cost of equity is 5% + 1.5 × 6% = 14%. NWC is invested at year-end and recovered at completion.

1. A.Build the incremental cash-flow schedule and calculate NPV.

Initial equipment investment is 400,000.00. The project lasts 5 years. The tax rate is 34.000%, required return 15.000% and terminal sale proceeds 50,000.00. Initial working capital is 0.00. Annual output is 10,000 keyboards. Unit prices start at 40 and grow by 5%; unit costs start at 20 and grow by 10%. NWC equals 5% of revenue at each year-end before final recovery.

1. A.Build the incremental cash-flow schedule and calculate NPV.

Initial equipment investment is 385,000.00. The project lasts 5 years. The tax rate is 35.000%, required return 8.000% and terminal sale proceeds 50,000.00. Initial working capital is 0.00. Research costs of 50,000 are sunk. Cash costs include annual rent foregone of 20,000. NWC is 6% of current revenue, invested at year-end and recovered at completion. The required return is 8%.

1. A.Build the incremental cash-flow schedule and calculate NPV.
2. B.Calculate the undiscounted payback period.

Initial equipment investment is 2,000,000.00. The project lasts 5 years. The tax rate is 30.000%, required return 9.000% and terminal sale proceeds 400,000.00. Initial working capital is 0.00. Cash costs shown combine operating costs of 900,000 and lost contribution of 100,000 from existing products; the exercise supplies only the lost revenue and assumes no offsetting cost saving. Past R&D of 300,000 is sunk. NWC is invested at the end of year 1.

1. A.Build the incremental cash-flow schedule and calculate NPV.
2. B.Set up the IRR equation and compare IRR with the hurdle rate.
3. C.Calculate the undiscounted payback period.

Initial equipment investment is 1,400,000.00. The project lasts 5 years. The tax rate is 30.000%, required return 9.000% and terminal sale proceeds 0.00. Initial working capital is 0.00. The revenue row represents annual labour savings: 12 × 34,000. Cash costs are two additional employees at 39,000 each. Only incremental inventories above the existing 200,000 are included; assume recovery at completion.

1. A.Build the incremental cash-flow schedule and calculate NPV.

Initial equipment investment is 3,000,000.00. The project lasts 5 years. The tax rate is 35.000%, required return 8.000% and terminal sale proceeds 750,000.00. Initial working capital is 0.00. Cash costs include production at 60% of sales and annual staff costs of 2 million. A feasibility study costing 100,000 is sunk. NWC increases at the ends of years 1 and 2.

1. A.Build the incremental cash-flow schedule and calculate NPV.
2. B.Set up the IRR equation and compare IRR with the hurdle rate.

A four-year protein-bar project uses a warehouse bought three years ago for $1 million. The warehouse currently earns annual rent of $120,000. The project requires $1.4 million in equipment at time 0, depreciated over five years; the equipment can be sold for $500,000 at the end of year 4.

Invest $800,000 in NWC at time 0, maintain it during operations and release it at the end of year 4.

1. A.Distinguish the sunk cost from the opportunity cost.
2. B.Calculate free cash flow and NPV.

Bambolo is considering a five-year production line. A €1.1 million feasibility study has already been paid. The project uses land currently earning €600,000 of annual rent, which would be lost during the project.

NWC equals 5% of current-year revenue, invested at each year-end. Opening NWC is zero; the balance is fully released at the end of year 5. This timing follows the supplied exercise schedule.

1. A.Identify the relevant cash flows.
2. B.Calculate the disposal proceeds after tax.
3. C.Build the cash-flow schedule and calculate NPV.

Initial equipment investment is 18,500,000.00. The project lasts 5 years. The tax rate is 30.000%, required return 8.500% and terminal sale proceeds 13,500,000.00. Initial working capital is 0.00. The feasibility study of 1,100,000 is sunk. Annual foregone rent of 600,000 is included in cash costs. NWC is funded at year-end and released at completion. This case uses 8.5%, as stated in the question.

1. A.Build the incremental cash-flow schedule and calculate NPV.