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FIN 615 NPV and IRR calculations

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FIN 615 NPV and IRR calculations Cost of Capital Time/yr Cash flow Input here Discounted CF NPV PV factor 10.00% 0 1 2 3 -30000000 9875000 9875000 9875000 -30000000 8977272.727 8161157.025 7419233.659 10538626 =cf1/((1+n)^1) =cf2/((1+n)^2) =cf3/((1+n)^3) 0.909090909 0.826446281 0.751314801 IRR 22.19% Over lunch, you and Mary meet to discuss next steps with the expansion project. “Do we have everything we need on sales and costs?” you ask. ”It must be time to compute the net present value (NPV) and “We have the data from James and Luke regarding projected sales and costs, respectively, for the food packaging project,” s “That sounds good,” you say. “Right," says Mary. "You can use a WACC of 10% for the computation of the NPV and comparison for IRR." “I’ve got the information I need from Luke and James,” you say. "Does this look right to you? Here’s what they gave me,” you “Let’s look at this now while we’re together,” she says. The information you hand to Mary shows the following: Initial investment outlay of $30 million, consisting of $25 million for equipment and $5 million for net working capital (NWC) (p Project and equipment life: 5 years Sales: $25 million per year for five years Assume gross margin of 60% (exclusive of depreciation) Depreciation: Straight-line for tax purposes Selling, general, and administrative expenses: 10% of sales Tax rate: 35% You continue your conversation. “It looks good,” says Mary. “Use this infor ...
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