Finance
Finance Case: Clifton Products Question No. 1: Projected Net cash Flows Year Net Cost Depreciation After-Tax Net WACC 10% Tax savings Cost savings Cash-Flow Tax 40% 0 ($85,000) ($85,000) 1 6800 15000 21800 2 10880 15000 25880 3 6460 15000 21460 4 4080 15000 19080 5 3740 15000 18740 6 2040 15000 17040 7 0 15000 15000 8 0 15000 15000 Question No. 2 Clifton Products Projected Net Cash Flows Years 0 1 2 3 4 5 6 7 8 2002 2003 2004 2005 2006 2007 2008 2009 2010 Cost of the system ($85,000) Net Cash Flow $21,800 $25,880 $21,460 $19,080 18,740 17,040 15,000 15,000 Cumulative Cash Flows (85,000) (63,200) (37,320) (15,860) 3,220 21,960 39,000 54,000 69,000 NPV $21,311 IRR 17.24% MIRR 13.12% Payback 3.83 Years. With the cost of capital of 10%, the NPV is $ 21,311. With other things constant, based on the NPV, the project should be accepted because the NPV is positive. NPV = PV inflows - Cost = Net gain in wealth. Accept project if NPV > 0.