Solution 1 Determine the marginal tax rate 5 points Solution Your firm s federal state marginal tax rate is 38 Year Initial Investment Installation Cost
Solution Determine the marginal tax rate points Solution Your firm s federal state marginal tax rate
Solution Determine the marginal tax rate points Solution Your firm s federal
tax rate points Solution Your firm s federal state marginal tax rate is Year Initial Investment Installation Cost
Solution Determine the marginal tax rate points Solution Your firm
s federal state marginal tax rate is Year Initial Investment Installation Cost
Solution Determine the marginal tax rate points Solution
Solution Determine the marginal
(Solution) 1 Determine the marginal tax rate (5 points) Solution Your firm's federal + state marginal tax rate is 38% Year Initial Investment Installation Cost

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Hey.. How did you get 38% discount rate in this question ? Can you please explain.1 Determine the marginal tax rate (5 points) SoluTon Your frm’s Federal + state marginal tax rate is 38% Year 0 1 2 3 4 5 6 IniTal Investment 140,000,000 InstallaTon Cost 10,000,000 NWC 35,000,000 Slavage Value 50,000,000 Revenues 40,000,000 150,000,000 180,000,000 160,000,000 110,000,000 80,000,000 Fixed Costs 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 DepreciaTon 20,006,000 34,286,000 24,486,000 17,486,000 12,502,000 12,488,000 variable Cost 12,000,000 45,000,000 54,000,000 48,000,000 33,000,000 24,000,000 ±axable Income -2,006,000 60,714,000 91,514,000 84,514,000 54,498,000 118,512,000 ±ax rate @38% -762,280 23,071,320 34,775,320 32,115,320 20,709,240 45,034,560 Net Income -1,243,720 37,642,680 56,738,680 52,398,680 33,788,760 73,477,440 Cash Flow from the project -150,000,000 18,762,280 71,928,680 81,224,680 69,884,680 46,290,760 85,965,440 2 Compute the Year 0 investment for the Project. (5 points) SoluTon -150,000,000 3 Compute the annual operaTng cash ²ows for years 1-6 of the project. SoluTon Year 0 1 2 3 4 5 6 Cash Flow from the project -150,000,000 18,762,280 71,928,680 81,224,680 69,884,680 46,290,760 85,965,440 4 Compute the non-operaTng (terminal) cash ²ow at the end of year 6. (10 points) SoluTon 85,000,000 5 Draw a Tmeline that summarizes all of the cash ²ows for your venture. (5 points) SoluTon 0 1 2 3 4 5 6 -150,000,000 18,762,280 71,928,680 81,224,680 69,884,680 46,290,760 85,965,440 6 Compute the IRR, payback, discounted payback, and NPV for the Project. (20 points) SoluTon Disconut Rate 19.40% IRR 29.65% NPV 47,013,431.33 Payback period Year Cash ±lows CumulaTve Cash ±lows 0 -150,000,000 -150,000,000 1 18,762,280 -131,237,720 2 71,928,680 -59,309,040 3 81,224,680 21,915,640 4 69,884,680 5 46,290,760 6 85,965,440 Payback period 2.73 years 7 Compute the standard deviaTon oF the NPV oF the project (10 points) SoluTon 83,534,772.10 8 Prepare a report for the ³rm’s CEO indicaTng which locaTon if any should be accepted and why, including careful explanaTon of tradeo´s and concerns in non-³nancial factors. SoluTon 9 Assign dollar heurisTcs to perTnent non-³nancial factors and determine whether your recommendaTon in 10. is consistent with heurisTcs using the NPV criterion. ²he potenTal locaTon is the Northern Mariana Islands. ²here are many skilled workers that are unemployed and garment Factories ready but unused. Consequently, the iniTal outlay to build here is $80,000,000 less than in Manaus or Waterloo. ²his would reduce the variable cost From 35% to 32% at a cost oF a $10,000,000 iniTal investment (the required investment is much greater but is o³set by electricity revenue). ²he tax rate is 35% but due to rebates the e³ecTve rate is 17.5% on repatriated income. Management believes this locaTon would product a project oF typical risk and the usual WACC would be appropriate. Clothes made in this Facility would be “Made in the USA” For labeling purposes. ²here is some regulatory uncertainty with respect to the local government, somewhat more so than in Manaus and signifcantly more than Waterloo. While part oF the US, the islands were allowed to set their own immigraTon policy and had an extensive guest worker program, drawing workers From South East Asia and China. Although the fnancial case For making an investment is a vital part oF the decision-making process, non-fnancial Factors can also be important.

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