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 what is the general policy of life insurance companies

1. What is the general policy of life insurance companies toward mortgage lending? 2. Identify the basic responsibility of each of the following four banking regulators: the Federal Reserve Bank Board, the Office of Thri ...

Norsk is a danish company that specializes in food product

Norsk is a Danish company that specializes in food product for daily consumption. It has five associated subsidiaries in the European Union and a network of distributors in North America. Recently, the company has decide ...

In early 2009 an article in the new york times

In early 2009, an article in the New York Times observed: "Without a cure for the problem of bad assets, the credit crisis that is dragging down the economy will linger, as banks cannot resume the ample lending needed to ...

Learn about someones cultural background interview a

Learn about someone's cultural background. Interview a partner about one aspect of his or her cultural background. First, ask your partner which aspect of his or her cultural identity (e.g., race, ethnicity, sex, religio ...

Corporation y needs to purchase a new machine costing 208

Corporation Y needs to purchase a new machine costing $2.08 million. Management is estimating the machine will generate cash inflows of $396,000 for two years and $300,000 for the following seven years. If management req ...

Discuss the process of capital budgeting including the cash

Discuss the process of capital budgeting including the cash flows that should and shouldn't be considered, incorporating risk measures into the process, sensitivity analysis, etc.

1 what is meant by the term structural compression how does

1. What is meant by the term "structural compression"? How does this term affect logistics? 2. What is a horizontal company and how would this type of company be organized? What are the strengths of this type of organiza ...

Explain how a short call added to a protective put forms a

Explain how a short call added to a protective put forms a collar and how it changes the payoff and up-front cost? Explain the process by which the profit of a short straddle closed out prior to expiration is influenced ...

Consider a world of perfect capital marketsnbsp this world

Consider a world of perfect capital markets.  This world has no corporate or personal taxes, all investors have homogeneous expectations, no bankruptcy costs, and M&M's no-tax theory of capital structure is true. Company ...

1 why are psychologists sometimes interested in

1. Why are psychologists sometimes interested in epidemiology? 2. Why do researchers use probability rather than nonprobability samples when doing descriptive research?

  • 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