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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. The NPV is project specific and varies from project to project (or customer to customer). It depends on the size and timing of cash flows and the applicable cost of capital. Therefore, yes, the NPV of this project may be different from similar projects of Clifton’s other customers.
Approximate Word count = 852
Approximate Pages = 3.4
(250 words per page double spaced)
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