A company is adding a new line to their product mix

•   Spent 100,000 over the last two years to rehabilitate the production site

•   The machines invoice is $240,000. IT will have a four year life, but it is placed on MACRS 5 year class. Expected salvage value of $38,000 after 4 years.

•   New line will generate 1,250 per year for four years.

•   Production costs are $100 first year

•   The units can be sold for $200

•   Sale price and cost expected to increase 3% per year.

•   New working capital of the new line should be equal to the first year sales revenue.

•   New product is expected to decrease sales of other lines in the firm by $50,000 per year.

•   Tax rate 35%

•   The firm is all equity:

o   $2.25 per dividend

o   $53.75 stock price

o   Dividends expected to grow 4% per year

o   Beta 1.17

o   Treasury bills yield 3.45%

o   Market Risk premium: 4.85%

Could Someone explain how to calculate the following?

•   A project’s Time 0 cash flow

•   The after-tax salvage cash flow

•   The annual operating cash flows, OCF (how to do for say 1-5 years)

•   Cash flow from assets, CFFA

•   The appropriate discount rate for a project

•   The NPV

•   IRR

•   Payback period