Listed below are factors that may be essential for inclusion when estimating project cash flows. The factors may be required to correctly calculate either the initial investment, the operating cash flows, or the terminal value that would be analyzed to determine the net present value of the project. It is also possible that certain factors could be used in more than one of the three categories of cash flow. Another possibility is that the factor listed is not relevant to cash flow estimation for this specific scenario.
Your task is to identify whether the factor would be included in the calculation for the initial investment, or the operating cash flow, or the terminal value, or is not relevant to this decision. You must also explain whether failure to appropriately include the factor in the calculation would result in overstating or understating the net present value of the project.
Purchase price of capital asset
Incremental annual depreciation expense
Total company sales revenue
Cash realized from sale of the old machine at its estimated salvage value
Interest on the loan used to finance the asset purchase
Total annual depreciation expense
Increase in working capital
Decrease in working capital
Total net income before tax
Incremental net income before tax
Marginal income tax rate
Investment tax credit
Cost of shipping and installing the new equipment
Directions and Grading Criteria
To complete this assignment, you are to develop a PowerPoint presentation. You should create 1-3 slides that identify the factors used to determine the initial investment, 2-5 slides that identify the factors used to determine the operating cash flow estimates, and 1-3 slides that identify the factors used to determine the terminal value estimate. You must also indicate on the slides whether failure to appropriately include the factor in the calculation would result in overstating or understating the net present value of the project. Additional explanations or comments should appear in the speaker notes for each slide. APA standards for writing style must be applied to the speaker notes. Factors that are not relevant to the NPV calculation should not be included on any slide.