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DATA:

Forecasted Sales – Year 1; $950,000 Year 2 & On; $1,500,000

Direct Costs (including labor and materials) – 55% of sales

Indirect Incremental Costs - $80,000 per year

New Plant - $1,000,000

Depreciation of new plant – 5 year straight line

Net investment in Inventory & Receivables - $200,000

Marginal Tax Rate – 35%

Capital Costs – 10%

Step 1(statement): (Gitman, 2006):

Calculation of Incremental Cash Flows for Superior Manufacturing's Proposed Project
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Revenue $950,000 $1,500,000 $1,500,000 $1,500,000 $1,500,000 $1,500,000 $1,500,000 $1,500,000
Direct Costs (55%) * $522,500 $825,000 $825,000 $825,000 $825,000 $825,000 $825,000 $825,000
Indirect Costs $80,000 $80,000 $80,000 $80,000 $80,000 $80,000 $80,000 $80,000
Depreciation * $200,000 $200,000 $200,000 $200,000 $200,000 0 0 0
Earnings before interest & taxes * $147,500 $395,000 $395,000......

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Approximate Word Count: 530
Approximate Pages: 3 (250 words per double-spaced page)

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