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TaiGueLe Enterprises, Inc. is considering launching a new corporate project.  The company will have to make Capital Investments, Working Capital investments, and generate Cash Flows from Operating the new project.    The Equipment required for the project will cost $9,000,000 today, will last for six years (the length of the project), and is estimated at the time of purchase to sell for $600,000 at the end of its life.  The company uses Straight-Line depreciation and has a Tax Rate of 27%.  The appropriate discount rate for the risks involved is 15%. Operating estimates for the project follow: Shown in picture       Per your  DCF analysis of the project, what is the cash flow from the change in net working capital in year six ?

TaiGueLe Enterprises, Inc. is considering launching a new corporate project.  The company will have to make Capital Investments, Working Capital investments, and generate Cash Flows from Operating the new project.    The Equipment required for the project will cost $9,000,000 today, will last for six years (the length of the project), and is estimated at the time of purchase to sell for $600,000 at the end of its life.  The company uses Straight-Line depreciation and has a Tax Rate of 27%.  The appropriate discount rate for the risks involved is 15%. Operating estimates for the project follow: Shown in picture       Per your  DCF analysis of the project, what is the cash flow from the change in net working capital in year six ?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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TaiGueLe Enterprises, Inc. is considering launching a new corporate project. 
The company will have to make Capital Investments, Working Capital investments, and
generate Cash Flows from Operating the new project.   

The Equipment required for the project will cost $9,000,000 today, will last for six years (the length of the project),
and is estimated at the time of purchase to sell for $600,000 at the end of its life. 
The company uses Straight-Line depreciation and has a Tax Rate of 27%. 
The appropriate discount rate for the risks involved is 15%.

Operating estimates for the project follow:

Shown in picture

 

 

 

Per your  DCF analysis of the project, what is the cash flow from the change in net working capital in year six ?

The table above details the financial data for a hypothetical company over a six-year period. The data points include Revenue, Cash Expenses, Depreciation, and End of Year Net Working Capital (NWC). Each of these is broken down annually from Year 1 to Year 6. ### Data Overview: - **Year 1:** - Revenue: $5,000,000 - Cash Expenses: $2,400,000 - Depreciation: $1,400,000 - End of Year NWC: $500,000 - **Year 2:** - Revenue: $5,300,000 - Cash Expenses: $2,544,000 - Depreciation: $1,400,000 - End of Year NWC: $530,000 - **Year 3:** - Revenue: $5,600,000 - Cash Expenses: $2,688,000 - Depreciation: $1,400,000 - End of Year NWC: $560,000 - **Year 4:** - Revenue: $5,900,000 - Cash Expenses: $2,832,000 - Depreciation: $1,400,000 - End of Year NWC: $590,000 - **Year 5:** - Revenue: $6,000,000 - Cash Expenses: $2,880,000 - Depreciation: $1,400,000 - End of Year NWC: $600,000 - **Year 6:** - Revenue: $5,000,000 - Cash Expenses: $2,500,000 - Depreciation: $1,400,000 - End of Year NWC: $500,000 ### Analysis: - The **Revenue** shows a general increase from Year 1 to Year 5, peaking at $6,000,000 in Year 5. However, it drops back to $5,000,000 in Year 6. - **Cash Expenses** gradually increase until Year 5, after which they slightly decrease in Year 6. - **Depreciation** remains constant at $1,400,000 across all six years, indicating a stable allocation for asset depreciation. -
Transcribed Image Text:The table above details the financial data for a hypothetical company over a six-year period. The data points include Revenue, Cash Expenses, Depreciation, and End of Year Net Working Capital (NWC). Each of these is broken down annually from Year 1 to Year 6. ### Data Overview: - **Year 1:** - Revenue: $5,000,000 - Cash Expenses: $2,400,000 - Depreciation: $1,400,000 - End of Year NWC: $500,000 - **Year 2:** - Revenue: $5,300,000 - Cash Expenses: $2,544,000 - Depreciation: $1,400,000 - End of Year NWC: $530,000 - **Year 3:** - Revenue: $5,600,000 - Cash Expenses: $2,688,000 - Depreciation: $1,400,000 - End of Year NWC: $560,000 - **Year 4:** - Revenue: $5,900,000 - Cash Expenses: $2,832,000 - Depreciation: $1,400,000 - End of Year NWC: $590,000 - **Year 5:** - Revenue: $6,000,000 - Cash Expenses: $2,880,000 - Depreciation: $1,400,000 - End of Year NWC: $600,000 - **Year 6:** - Revenue: $5,000,000 - Cash Expenses: $2,500,000 - Depreciation: $1,400,000 - End of Year NWC: $500,000 ### Analysis: - The **Revenue** shows a general increase from Year 1 to Year 5, peaking at $6,000,000 in Year 5. However, it drops back to $5,000,000 in Year 6. - **Cash Expenses** gradually increase until Year 5, after which they slightly decrease in Year 6. - **Depreciation** remains constant at $1,400,000 across all six years, indicating a stable allocation for asset depreciation. -
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