The president of Crandall Ceramics is trying to decide whether or not to open a new location.

The president of Crandall Ceramics is trying to decide whether or not to open a new location. The initial outlay required will be $1 million (fully depreciable) and the expected before-tax cash flows over each of the following 6 years are estimated to be either $500,000 or $250,000 depending on the state of the economy. Depreciation expense is taken on the basis of the MACRS three-year class. No working capital requirements for the project, but it will have a $100,000 salvage value at the end of year 6. Finally, Crandall faces a marginal tax rate of 40%. MACRS depreciation percentages for three-year class are 33%, 45%, 15%, and 7% respectively.

a. Find investment initial outlay

b. Find terminal (end-of-project) value

c. Find net operating cash flows for periods 1 – 6

d. Produce a timeline of cash flows for periods 0 – 6 (two sets of cash flows)

The president of Crandall Ceramics is trying to decide whether or not to open a new location.