396 Part 4 Investing in Long-Term Assets: Capital Budgeting
Tabl e I C 12 - 2 Allied’s Lemon Juice Project Considering 5% Inflation (in Thousands)YEAR
0 1 2 3 4
Investment in:
Fixed assets ($240)
Net working capital (20)
Unit sales (thousands) 100 100 100 100
Sales price (dollars) $ 2.100 $ 2.205 $ 2.315 $ 2.431
Total revenues $210.0 $220.5 $231.5 $243.1
Cash operating costs (60%) 126.0 132.3 138.9 145.9
Depreciation 79.2 108.0 36.0 16.8
Operating income before taxes (EBIT) $ 4.8 ($ 19.8) $ 56.6 $ 80.4
Taxes on operating income (40%) 1.9 (7.9) 22.6 32.1
After-tax operating income $ 2.9 ($ 11.9) $ 34.0 $ 48.3
Plus depreciation 79.2 108.0 36.0 16.8
Project operating cash flows $ 82.1 $ 96.1 $ 70.0 $ 65.1
Salvage value 25.0
Tax on SV (40%) (10.0)
Recovery of NWC 20.0
Project net cash flows ($260) $ 82.1 $ 96.1 $ 70.0 $100.1
Cumulative cash flows for payback: (260.0) (177.9) (81.8) (11.8) 88.3
Compounded inflows for MIRR: 109.2 116.3 77.0 100.1
Sum of compounded inflows: 402.6
NPV " $15.0
IRR " 12.6%
MIRR " 11.6%