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Below is a summary of the estimates of a firm’s cash flow from a certain project with an initial investment of one million dollars.
a. complete the table below
| Year1 | Year2 | Year3 | Year4 | Year5 |
Sales | $1,000,000 | $1,100,000 | $1,210,000 | $1,331,000 | ? |
Less: Variable Cost | $500,000 | $550,000 | ? | $665,500 | $732,050 |
Fixed Cost | $150,000 | ? | $150,000 | ? | ? |
Depreciation | $200,000 | $200,000 | $200,000 | ? | ? |
Profit before tax | $150,000 | ? | ? | ? | $382,050 |
Less: incomes tax | $60,000 | $80,000 | $102,000 | $126,200 | ? |
Profit after tax | ? | ? | ? | $189,300 | $229,230 |
Plus: depreciation | ? | ? | ? | $200,000 | ? |
Net cash flow | $290,000 | ? | $353,000 | $389,300 | ? |
b. Calculate the NPV at DF = 12%
c. Calculate the PI
d. Briefly explain the answer to (b) and (c) above.
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