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(5) Cash Flow Estimation (40 points) - We assume that the company you selected is considering a new project. The project has 8 yearsf life. This project requires initial investment of $300 million to construct building and purchase equipment, and $20 million for shipping 8: installation fee. The fixed assets fall in the 7-year MACRS class. The salvage value of the fixed assets is $15 million. The number of units of the new product eXpected to be sold in the first year is 2,000,000 and the eXpected annual growth rate is 10%. The sales price is $300 per unit and the variable cost is $220 per unit in the first year, but they should be adjusted accordingly based on the estimated annualized in?ation rate of 2.8%. The required net operating working capital (NOWC) is 12% of sales. Please use the corporate tax rate that you obtained in Step (4) for the project. The project is assumed to

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We assume that the company that you selected is considering a new project. We assume that the company you selected is considering a new project. The project has 8 years? life. This project requires initial investment of $500 million to construct building and purchase equipment, and $30 million for shipping & installation fee. The fixed assets fall in the 7-year MACRS class. The salvage value of the fixed assets is $32 million. The number of units of the new product expected to be sold in the first year is 1,500,000 and the expected annual growth rate is 7.8%. The sales price is $285 per unit and the variable cost is $235 per unit in the first year, but they should be adjusted accordingly based on the estimated annualized inflation rate of 1.8%. The required net operating working capital (NOWC) is 13.6% of sales. Use the corporate tax rate (TAX RATE IS 22.13%) obtained in Step (4) for this project. The project is assumed to have the same risk as the corporation, so you should use the WACC you obtained from prior steps as the discount rate. WACC is 3.99% Note: you may revise the partial model in the file Ch11 P18 Build a Model.xls provided by the textbook (Posted in this final project learning module in Blackboard) for capital budgeting analysis, but you are NOT required to strictly follow this partial model. Actually, you are encouraged to build a model by yourself. - Compute the depreciation basis and annual depreciation of the new project. (Please refer to Table 11A2 MACRS allowances in the textbook) - Estimate annual cash flows for the 8 years. - Draw a time line of the cash flows. (6) Capital Budgeting Analysis (40 points)

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