2. Exercises (End of Chapter: Q. 14)

3. Step 1. Find CAPEX
CAPEX = Initial investment+Intallation cost+Shipping cost
= 1,000,000
Depreciation exp.
= (1,000,000-0)/10 = $100,000 per year
Step 2. Working Capital Requirement
Y0 = 50,000 (one time)
Q1. Initial cash outlay = $1,000,000+$50,000
= $1,050,000

4. Y0 Y1 Y2 Y3 Y4 Y5
Revenue
-COGS GP
-Operating exp
-Depreciation exp
EBIT,
-Tax ( T %)
NOPAT= Net operating income after tax
+Depreciation exp.
Operating Cash Flow
- Increase in CAPEX
- Increase in NOWC
FCF

5. Step 3&4: Find Operating CF =NOPAT+ Depreciation exp., FCFY0
Y1-Y9
Y10
Revenue =PricexUnit
$1,000,000
-VC 40%
400,000
-FC
160,000
-Depreciation exp
100,000
EBIT
340,000
-Tax 34%
( 115,000)
(115,600)
NOPAT
224,400
+Depreciation exp.
Operating Cash Flow
324,400
Less CAPEX
-1,000,000
Less increase NoWC
-50,000
50,000
FCF
-1,050,000
374,400
NPV= -1,050, ,400/(1.1)+324,400/(1.1)2+324,400/(1.1)3+324,400/(1.1)4+324,400/(1.1)5
+324,400/(1.1)6+324,400/(1.1)7+324,400/(1.1)8+324,400/(1.1)9+374,400/1.110
NPV =

7. Exercises (End of Chapter: Q. 22)

8. Exercises (End of Chapter: Q. 22-continue)
Calculate the project’s free cash flows during years 0-5
Calculate the project’s NPV.

9. Y0 Y1 Y2 Y3 Y4 Y5
Revenue
-COGS GP
-Operating exp
-Depreciation exp
EBIT,
-Tax ( T %)
NOPAT= Net operating income after tax
+Depreciation exp.
Operating Cash Flow
- Increase in CAPEX
- Increase in NOWC
FCF

10. NPV(15%, , , , , )  NPV = $17,461,989.

11. Exercises (End of Chapter: Q. 23)

12. Exercises (End of Chapter: Q. 23-continue)
Calculate the project’s free cash flows during years 0-5

13. Y0 Y1 Y2 Y3 Y4 Y5
Revenue
-COGS GP
-Operating exp
-Depreciation exp
EBIT,
-Tax ( T %)
NOPAT= Net operating income after tax
+Depreciation exp.
Operating Cash Flow
- Increase in CAPEX
- Increase in NOWC
FCF

14. = NPV(15%, , , , , )  NPV = $16,224,245.

15. Personal Summary
Write down one thing you learned in this chapter that is interesting, new, or useful to you.
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