Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

Excel Inc Limited Steel Division is considering the proposal to buy new machine to produce a new product for the potential 3 year contract. New machine will cost= $1.12 million. Machine has the approximate life of 3 years for accounting & taxation purposes. Contract won’t continue beyond 3 years and equipment approximate salvage value at the ending of 3 years= $105,000. Tax rate is 28 percent and is payable in year following the year in which profit is earned. Investment allowance of 30% on outlay is available. Cost of capital is 13.25%pa. In addition net working capital= $72,000 is needed immediately for present assets to support project. Suppose that this amount is recovered at the ending of three year life of project. New product will be charged $53,000 of allocated head office administration costs each year although head office won’t actually incur any extra costs to manage the project. This is in accordance with firm’s policy of allocating all corporate overhead costs to divisions. Extra marketing and administration cash outflows of $43,500 per year will be incurred by Steel Division for project. The amount of $59,000 has been spent on the pilot study and market research for new product. Projections given here are based on this work. Projected sales for new product= 32,000 units at $135 per unit per year. Cash operating expenses are approximate to be 73% of sales (excludes marketing and administration, and head office items). Except for initial outlays, suppose cash flows occur at the ending of each year (unless otherwise stated). Suppose prime cost depreciation for tax purposes. Any losses should be carried forward and offset by income in given year.

problems

(i) Create the table illustrating your computationa of net cash flow after tax.

(ii) Compute NPV. Is the project acceptable? Describe why or why not?

(iii) prepare a brief report describing your computations of applicable net cash flows after tax, justifying your choice of cash flows. Make sure to mention clearly any suppositions made (implicit and explicit).

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914211

Have any Question? 


Related Questions in Basic Finance

1 why did herman wouters resign2 what is the international

1. Why did Herman Wouters resign? 2. What is the international strategy of StarUSA? 3. How has StarUSA's development affected its HR function?

Write an introduction for a reporttampc a consumer products

Write an introduction for a report T&C, a consumer products company, has long been known for its product development prowess. You were recently hired by the company's public affairs department to manage the development o ...

A share of common stock is currently selling for 2773 the

A share of common stock is currently selling for $27.73. The last dividend paid was $1.60 per share. The marketrate of return is 10%. At what rate is the dividend growing?

An absorber packed to the height of 45 m with 10-in raschig

An absorber packed to the height of 4.5 m with 1.0-in. Raschig rings has been designed to reduce the concentration level of a mercaptan pollutant in an exhaust stream from 5.0 to 0.3 mol %. A nonvolatile, mercaptan-free ...

1 what is the primary distinction between mortgage-related

1. What is the primary distinction between mortgage-related securities backed by residential mortgages and those backed by commercial mortgages? 2. Name the major types of credit enhancement used for commercial-backed mo ...

Part 1 short questions a short precise and concise answer

Part 1: Short questions. A short, precise and concise answer will obtain full credit. (NB: We will take the seven highest grades of your answers to these eight questions.) Question 1 A treasurer argues with the CFO that ...

You have just performed a scenario analysis on a project

You have just performed a scenario analysis on a project, with the following results: Best Case: with a 35% probability, you get an NPV of $77 Base Case: with a 55% probability, you get an NPV of $24 Worst Case: with a 1 ...

1 what is the sinking-fund factor how and why is it used2

1. What is the sinking-fund factor? How and why is it used? 2. What is an internal rate of return? How is it used? How does it relate to the concept of compound interest?

The ok railroad needs to raise 95 million for capital

the O.K. Railroad needs to raise $9.5 million for capital improvements. One possibility is a new preferred stock issue - 8 percent dividend, $100 par value - stock that would yield 9 percent to investors. Flotation costs ...

Pets store inc sells on terms of 320 net 75 what is the

Pets Store Inc. sells on terms of 3/20, net 75. What is the effective annual cost of trade credit under these terms? Use a 365-day year.

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro