GROUP ASSIGNMENT COVER SHEET

STUDENT DETAILS

Student name: Phạm Hoàng Quân Student ID number: 23005201

Student name: Nguyễn Trâm Anh Student ID number: 23005437

Student name: Nguyễn Hữu Đức Student ID number: 22003885

Student name: Hoàng Khởi Cơ Student ID number: 22004145

Student name: Lý Hoàng Bảo Trâm Student ID number: 23005729

UNIT AND TUTORIAL DETAILS

Unit name: Corporate finance Unit number:

Tutorial/Lecture: Lecture Class day and time:
Lecturer or Tutor name: Võ Hồng Đức (Lecturer) - Nguyễn Đức Nguyên (Tutor)
ASSIGNMENT DETAILS

Title: CF exercise 2 - Group 8

Length: Due date: 28-2-2024 Date submitted: 28-2-2024

DECLARATION
I hold a copy of this assignment if the original is lost or damaged.
I hereby certify that no part of this assignment or product has been copied from any other student’s work or
from any other source except where due acknowledgement is made in the assignment.
I hereby certify that no part of this assignment or product has been submitted by me in another (previous
or current) assessment, except where appropriately referenced, and with prior permission from the
Lecturer / Tutor / Unit Coordinator for this unit.
No part of the assignment/product has been written/ produced for me by any other person except where
collaboration has been authorised by the Lecturer / Tutor /Unit Coordinator concerned.
I am aware that this work may be reproduced and submitted to plagiarism detection software programs for the
purpose of detecting possible plagiarism (which may retain a copy on its database for future plagiarism
checking).

Student’s signature: Tram

Student’s signature: Tram Anh
Student’s signature: Duc
Student’s signature: Khoi Co

Note: An examiner or lecturer / tutor has the right to not mark this assignment if the above declaration has not
been signed.
 Take-home Exercise No. 2
Your company has been doing well, reaching $1 million in earnings, and is
considering launching a new product. Designing the new product has already cost
$500,000. The company estimates that it will sell 770,000 units per year for $4.5 per
unit, and variable non-labor costs will be $1 per unit. Production will end after year 3.
New equipment costing $1 million will be required. The equipment will be put into
use in year 1 and depreciated to zero using the 7-year MACRS schedule. You plan to
sell the equipment for book value at the end of year 3. Your current level of working
capital is $350,000. The new product will require the working capital to increase to a
level of $500,000 immediately, then to $440,000 in year 1, in year 2 the level will be
$370,000, and finally in year 3 the level will return to $350,000. Your tax rate is 21%.
The discount rate for this project is 10%. Do the capital budgeting analysis for this
project and calculate its NPV.

Note
- Sell the equipment for book value at the end of year 3
- Use the 7-year MACRS depreciation

Given information
Number of units (per year) 770,000
Price per unit $4.5
Variable non-costs per unit $1
Projected life 3 years
Cost of new equipment $1,000,000
Current working capital $350,000
Tax rate 21%
Discount rate 10%
 Calculation of Cash Flow
Year 0 1 2 3
Revenue (1) $3,465,000 $3,465,000 $3,465,000
Costs (2) $770,000 $770,000 $770,000
Depreciation $142,900 $244,900 $174,900
EBT (3) $2,552,100 $2,450,100 $2,520,100
Tax (4) $535,941 $514,521 $529,221
Net income (5) $2,016,159 $1,935,579 $1,990,879

Operating cash
flow (6) $2,159,059 $2,180,479 $2,165,779

Purchase of
equipment -$1,000,000
Sale of equipment
(7) $437,300
Net capital
spending -$1,000,000 0 0 $437,300

Net working capital $500,000 $440,000 $370,000 $350,000

Change in NWC -$150,000 $60,000 $70,000 $20,000
Opportunity cost $- $- $- $-
CFFA (8) -$1,150,000 $2,219,059 $2,250,479 $2,623,079
The rates used in chart is according to the 7 year MACR depreciation chart

Table showing book value of depreciation:

(MACR) Depreciation
Year Depreciation Rate (Cost*Rate)
Cost $1,000,000
1 0.1429 $142,900
2 0.2449 $244,900
3 0.1749 $174,900
Total Depreciation $562,700
Book value (7) $473,300

Explanation

(1) Revenue = Number of units x Price per unit

= 770,000 x $4.5= $3,465,000

(2) Non-labor cost = Number of units x Variable non-labor costs per unit
= 770,000 x $1 = $770,000

(3) EBIT (year 1) = Revenue - Non-Labor cost - Depreciation (year 1)

= $3,465,000 - $770,000 - $142,900 = $2,552,100

EBIT (year 2) = Revenue - Non-Labor cost - Depreciation (year 2)

= $3,465,000 - $770,000 - $244,900 = $2,450,100

EBIT (year 3) = Revenue - Non-Labor cost - Depreciation (year 3)

= $3,465,000 - $770,000 - $174,900 = $2,520,100

(4) Tax (year 1) = EBIT (year 1) x tax rate

= $2,552,100 x 21% = $535,941

Tax (year 2) = EBIT (year 2) x tax rate

= $2,450,100 x 21% = $514,521
 Tax (year 3) = EBIT (year 3) x tax rate
= $2,520,100 x 21% = $529,221

(5) Net income (year 1) = EBIT (year 1) - tax (year 1)

= $2,552,100 - $535,941 = $2,016,159

Net income (year 2) = EBIT (year 2) - tax (year 2)

= $2,450,100 - $514,521 = $1,935,579

Net income (year 3) = EBIT (year 3) - tax (year 3)

= $2,520,100 - $529,221 = $1,990,879

(6) Operating cash flow (OCF)(year 1) = Net income (year 1) + Depreciation(year1)

= $2,016,159 + $142,900 = $2,159,059

Operating cash flow (OCF)(year 2) = Net income (year 2) + Depreciation (year2)

= $1,935,579 + $244,900 = $2,180,479

Operating cash flow (OCF)(year 3) = Net income (year 3) + Depreciation (year3)

= $1,990,879 + $174,900 = $2,165,779

(7) Sale of equipment = Book value of equipment = Purchase of equipment -

(Depreciation (year 1) + Depreciation (year 2) + Depreciation (year 3))
= $1,000,000 - ($142,900 + $244,900 + $174,900) = $437,300

(8) CFFA = Operating cash flow (year 0) + net capital spending (0) + change in net
working capital (0) + opportunity cost
= $0 -$1,000,000 - $150,000 = -$1,150,000

CFFA = Operating cash flow (year 1) + net capital spending (1) + change in net
working capital (1) + opportunity cost
= $2,159,059 + $0 + $60,000 = $2,219,059

CFFA = Operating cash flow (year 2) + net capital spending (2) + change in net
working capital (2) + opportunity cost
= $2,180,479 + $0 + $70,000 = $2,250,479

CFFA = Operating cash flow (year 3) + net capital spending (3) + change in net
working capital (3) + opportunity cost
= $2,165,779 + $437,300 + $20,000 = $2,623,079
 Change in Net working Capital
Current
Working
Year Capital 0 1 2 3
Net working
capital (NWC) $350,000 $500,000 $440,000 $370,000 $350,000
$350,000 - $500,000 - $440,000 - $370,000 -
Formula $500,000 $440,000 $370,000 $350,000
Change in
NWC -$150,000 $60,000 $70,000 $20,000

- Net Present Value (NPV)

𝐶1 𝐶2 𝐶3
NPV = - 𝐶0+ (1+𝑟)
+ 2 + 3
(1+𝑟) (1+𝑟)

$2,219,059 $2,250,479 $2,623,079

NPV = - $1,150,000 + (1+10%)
+ 2 + 3
(1+10%) (1+10%)

NPV = $4,697,984.44