Calculate the after-tax gain or loss of salvage

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Reference no: EM132036449

Problem

Use the following data for the remaining problems.

Capstone Quarry is analyzing whether a new contract proposal will be a good idea. The relevant data is shown below. The net working capital will be paid in the same time period as the cost of the equipment and will be recovered at the end of the project.

Remember to calculate the after-tax gain or loss of salvage as part of your terminal cash flow.

Capstone Quarry Company Contract Analysis
Amount of Rock Salt per Year	23,000 Tons
Revenue per Ton	$ 145
Cost of Equipment	$ 2,750,000
Life(years)	5
MACRS Class	5
Fixed Cost per year	$ 475,000
Var Cost/Ton	$ 85
Actual Salvage	$ 105,000
Change in NWC	$ 85,000
Required Return	12%
Tax Rate	34%

1) Find the cash flows for each year

2) Net present value

3) Payback period

4) Discounted payback

5) IRR

6) MIRR

Hint:

Annual Cash Flows for Capstone Quarry

	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Initial Outlay
Unit Sales
Sales
Variable Costs
Fixed Costs
Depreciation
Taxable Cash Flows
Taxes
Add: Depreciation
Annual After-Tax Cash Flow
Terminal Cash Flow
Total Annual Cash Flows

Reference no: EM132036449

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