# Free cash flows, NPV, Profitability Index and IRR

Please see problem below. I would like it done in Excel. I've tried working on it a couple of times but I don't think I'm getting it right. Thanks.

Windex Corporation, a firm in the 38 percent marginal tax bracket with a 17.5% required rate of return or cost of capital, is considering a new project. This project involves the introduction of a new product. This project is expected to last five years and then, to be terminated (the salvage value is realized at the end of year 5). Given the following information, determine the free cash flows associated with the project, the project's net present value, the profitability index, and the internal rate of return. Apply the appropriate decision criteria.

Cost of new plant and equipment: $18,800,000

Shipping and installation costs: $ 300,000

Sales:

Year Units Sold

1 60,000

2 130,000

3 110,000

4 90,000

5 60,000

Price per unit: $310/unit in years 1-3

$275/unit in year 4-5

Variable cost per unit: $145/unit

Annual fixed costs: $850,000

Salvage Value of Plant and Equipment: $2,700,000

Working-Capital Requirements: There will be an initial working-capital requirement of $250,000 just to get production started. For each year, the total investment in net working capital will be equal to 8 percent of the dollar value of sales for that year. All working capital is liquidated at the termination of the project at the end of year 5.

Depreciation Method: Investments qualify for the 5-year MACRS (Modified Accelerated Recovery System) class.

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#### Solution Summary

The solution explains how to calculate the free cash flows, NPV, Profitability Index, and IRR.