To open a new store, Ross Tire Company plans to invest $640,000 in equipment expected to have a four-year useful life and no salvage value. Ross expects the new store to generate annual cash revenues of $840,000 and to incur annual cash operating expenses of $520,000. Ross' average income tax rate is 30 percent. The company uses straight-line depreciation.
Determine the expected annual net cash inflow from operations for each of the first four years after Ross opens the new store.© BrainMass Inc. brainmass.com October 17, 2018, 10:53 am ad1c9bdddf
Please refer attached file for better clarity of table in MS Excel.
Depreciation=(Plant Cost-Salvage)/Useful life=$160,000
Tax liability=(Operating Revenue-Operating expense-Depreciation)*Tax ...
Solution depicts the steps to estimate the annual net cash flow in the given case.
Accounting: Capital budgeting and Decision Making
The attached spreadsheet has the inputs and capital budget net cash flows analysis for an investment of $1,000,000 over 10 years, with a WACC of 7.67%.
1) Calculate the Net Present Value, IRR, Profitability Index and Payback Years for this capital budget.
2)Prepare a scenario analysis with the following data:
a) Base Case (average scenario)= 25,000 units sold per year= 55% probability
b) Worst case scenario= 18,750 units sold per year- 25% probability
c) Best Case scenario= 31,250 units sold per year- 20% probability
d) Determine the scenario analysis for NPV and IRR?
e) What does the Risk assessment tell you about the project?