DATA:
Forecasted Sales ? Year 1; $950,000 Year 2 & On; $1,500,000
Direct Costs (including labor and materials) ? 55% of sales
Indirect Incremental Costs - $80,000 per year
New Plant - $1,000,000
Depreciation of new plant ? 5 year straight line
Net investment in Inventory & Receivables - $200,000
Marginal Tax Rate ? 35%
Capital Costs ? 10%
Step 1(statement): (Gitman, 2006):
Calculation of Incremental Cash Flows for Superior Manufacturing's Proposed Project
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Revenue $950,000 $1,500,000 $1,500,000 $1,500,000 $1,500,000 $1,500,000 $1,500,000 $1,500,000
Direct Costs (55%) * $522,500 $825,000 $825,000 $825,000 $825,000 $825,000 $825,000 $825,000
Indirect Costs $80,000 $80,000 $80,000 $80,000 $80,000 $80,000 $80,000 $80,000
Depreciation * $200,000 $200,000 $200,000 $200,000 $200,000 0 0 0
Earnings before interest & taxes * $14 ...