** Please see the attached file for the complete problem description **
Hello, I have been having difficulties with a problem relating to cash flow analysis. Your assistance in the matter would be greatly appreciated.
Dunder-Mifflin, Inc. is analyzing the potential profitability of three printing jobs put up for bid by the State Dept. of Revenue:
(please see the attached file)
Assume that (1) the company's marginal city-plus-state-plus-federal tax rate is 50%; (2) each job is expected to have a six year life; (3) the firm uses straight-line depreciation; (4) the average cost of capital is 14%; (5) the jobs have the same risk as the firm's other businesses; and (6) the company has already spent $60,000 developing the preceeding data. This $60,000 has been capitalized and will be amortized over the life of the project.
A. What is the expected net cash flow for each year?
B. What is the NPV of each project?
C. Suppose that Dunder-Mifflin's primary business is quite cyclical, improving and declining with the economy, but that job A is expected to be countercyclical. Might this have any bearing on your decision?
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This solution shows how to perform a given cash flow analysis in Excel.