Year 0 Year 1 Year 2 Year 3

Incremental 600,000 690,000 793,500

blended sales ( in
volume)
Selling price ( per $4.05 $4.05 $4.05
gallon)
Blending cost ( per $0.20 $0.20 $0.20
gallon)
Material variable $3.53 $3.53 $3.53
cost
Selling and $0.20 $0.20 $0.20
administrative
expenses ( per
gallon)
Tax rate 30% 30% 30%
WACC 15% 15% 15%
Working capital as 2% 2% 2%
percent of sales

Year 0 Year 1 Year 2 Year 3

Required WC $48,600 $55,890 $64,274
Required Increase $7,290 $8,383 $(64,274)
in WC

Year 0
Equipment cost $105,000
Installation cost $15,000
Increase in WC $48,600
Total project cost $168,600

After tax salvage value

Sale of equipment 9,000
Book value 8,400
Taxable gain 600
Income taxes 180
Cash flow from sale 8,820
Liquidation from WC 64,274
Total after tax salvage value 73,094
 Year 0 Year 1 Year 2 Year3 Year 4 Year 5 Year 6 Year 7

Sales 600,000 690,000 793,500 912,525 1049,404 1206,814 1387,836

Selling price 4.05 4.05 4.05 4.05 4.05 4.05 4.05

Total 3.70 3.70 3.70 3.70 3.70 3.70 3.70
Production
variable cost
Selling and 0.20 0.20 0.20 0.20 0.20 0.20 0.20
administrative
cost
Tax rate 30% 30% 30% 30% 30% 30% 30%
WC (Increased 48,600 55,890 64,274 73,915 11,087 12,750 14,663 (112,415)
percentage of
sales 2%)
Required WC 15% 15% 15% 15% 15% 15% 15%

Acquisition cash flows Year 0

Equipment cost 3,60,000
Installation cost 60,000
Increase in WC 48,600
Total project cost 468,600

After tax salvage value

Sales of equipment 60000
Book value 16,800
Taxable gain 43,200
Income tax 8640
Cash flow from sale 51360
Liquidation from WC 112,415
Total after tax salvage value 163,775
 Year 0 Year 1 Year 2 Year 3
Sales 600,000 660,000 726,000
Selling price 4.05 4.05 4.05

Total production 3.53 3.53 3.53

variable cost
Selling and 0.20 0.20 0.20
administrative
cost
Tax rate 30% 30% 30%
WACC 15% 15% 15%
Working capital as 2% 2% 2%
percentage of sale
Required WC 48,600 53,460 58,806 0
Required increase 4,860 5,346 (58,806)
in WC

Acquisition cost Year 0

Equipment cost 105,000
Installation cost 15,000
Increase in WC 48,600
Total project cost 168,600

After tax salvage value

Sale of equipment 9,000
Book value 8,400
Taxable gain 600
Income taxes 180
Cash flow from sale 8,820
Liquidation from WC 58,806
Total after tax salvage value 67,627
 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Sales 600,000 660,000 726,000 798,600 878,460 966,306 1062,937

Selling price 4.50 4.50 4.50 4.50 4.50 4.50 4.50
Total 3.70 3.70 3.70 3.70 3.70 3.70 3.70
production cost
Selling and 0.20 0.20 0.20 0.20 0.20 0.20 0.20
administrative
cost
Tax rate 30% 30% 30% 30% 30% 30% 30%

WACC 15% 15% 15% 15% 15% 15% 15%

Working capital 2% 2% 2% 2% 2% 2% 2%
increase
Required WC 48,600 53460 58,806 64,687 71155 78271 86098 0
Required 4860 5346 5881 6469 7116 7827 (86098)
increase in WC

Acquisition cash flows Year 0

Equipment cost 3,60,000
Installation cost 60,000
Increase in WC 48,600
Total project cost 468,600

After tax salvage value

Sales of equipment 60000
Book value 16,800
Taxable gain 43,200
Income tax 8640
Cash flow from sale 51360
Liquidation from WC 86098
Total after tax salvage value 137458
 Year 0 Year 1 Year 2 Year 3
Sales 600,000 660,000 726,000
Selling price 4.05 4.05 4.05

Total production 3.53 3.53 3.53

variable cost
Selling and 0.20 0.20 0.20
administrative
cost
Tax rate 30% 30% 30%
WACC 15% 15% 15%
Working capital as 2% 2% 2%
percentage of sale
Required WC 48,600 51,030 53582 0
Required increase 2430 2552 (53582)
in WC

Acquisition cost Year 0

Equipment cost 105,000
Installation cost 15,000
Increase in WC 48,600
Total project cost 168,600

After tax salvage value

Sale of equipment 9,000
Book value 8,400
Taxable gain 600
Income taxes 180
Cash flow from sale 8,820
Liquidation from WC 53,582
Total after tax salvage value 62,402
 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Sales 600,000 660,000 726,000 798,600 878,460 966,306 1062,937

Selling price 4.50 4.50 4.50 4.50 4.50 4.50 4.50
Total 3.70 3.70 3.70 3.70 3.70 3.70 3.70
production cost
Selling and 0.20 0.20 0.20 0.20 0.20 0.20 0.20
administrative
cost
Tax rate 30% 30% 30% 30% 30% 30% 30%

WACC 15% 15% 15% 15% 15% 15% 15%

Working capital 2% 2% 2% 2% 2% 2% 2%
increase
Required WC 48,600 51030 53582 56,261 59074 62027 65129 0
Required 2430 2552 2679 2813 2954 3103 (65129)
increase in WC

Acquisition cash flows Year 0

Equipment cost 3,60,000
Installation cost 60,000
Increase in WC 48,600
Total project cost 468,600

After tax salvage value

Sales of equipment 60000
Book value 16,800
Taxable gain 43,200
Income tax 8640
Cash flow from sale 51360
Liquidation from WC 65129
Total after tax salvage value 116,489