[nhsoccerchick]

Contemplating 1,000,000 investment in a new production facility. Economic Life of Facility est. 5 years no salvage value. Building improvements 400,000, straight-line method. 30% tax bracket, 8% cost capital. yr.1- 80,000, yr.2- 100,000, yr.3 120,000, yr.4 140,000, yr. 5- 165,000

1) Diagram the cash flows for the project using a time line. For each year 1 through 5, include the following data on your diagram (in this order), EBIT, Tax, depreciation, operating cash flow, and discounted operating cash flow.

2) indicate the initial investment cost, the present value, the NPV, and the payback (measured in years based on non-discounted OCF numbers.

3) Evaluate the projects efficacy. Is this facility worth while, based upon your calculations? Why or why not? What does the NPV decision rule indicate for this project? If you were Bender's financial manager, what other factors would you consider before deciding whether to recommend construction of the production facility?

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