Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Financial Accounting Expert

Problem: Parker Products manufactures a variety of household products. The company is considering introducing a new detergent. The company’s CFO has collected the following information about the proposed product. (Note: You may or may not need to use all of this information, use only the information that is relevant.)

The project has an expected economic life of 4 years.

The company will have to purchase a new machine to produce the detergent. The machine has an up-front cost (t = 0) of $2 million. The machine will be fully depreciated using the straight-line method over 4 years. The company expects that the machine will last for four years, and that after four years, its salvage value will equivalent zero.

If the company goes ahead with the proposed product, it will have the effect on the company’s net operating working capital. At the outset, t = 0, inventory will raise by $140,000 and accounts payable will rise by $40,000. At t = 4, the net operating working capital will be recovered after the project is completed.

The detergent is anticipated to generate sales revenue of $1 million the first year (t = 1), $2 million the second year (t = 2), $2 million the third year (t = 3), and $1 million the final year (t = 4). Each year the operating costs (not comprising depreciation) are expected to equivalent 50 percent of sales revenue.

The company’s interest expense each year will be $100,000.

The new detergent is anticipated to reduce the after-tax cash flows of the company’s existing products by $250,000 a year (t = 1, 2, 3, and 4).

The project’s discount rate is estimated to be 12 percent. The company’s tax rate is 40 percent.

What is the NPV of the proposed project?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M93588

Have any Question? 


Related Questions in Financial Accounting

1 investments in debt and equity securities that are held

1. Investments in debt and equity securities that are held for current resale by banks and stockbrokerage firms are termed a. available-for-sale securities b. trading securities c. held-to-maturity securities d. marketab ...

On december 31 20x8 mercury corporation acquired 100

On December 31, 20X8, Mercury Corporation acquired 100 percent ownership of Saturn Corporation. On that date, Saturn reported assets and liabilities with book values of $300,000 and $100,000, respectively, common stock o ...

Cvp analysis margin of safety suppose doral corps breakeven

CVP analysis, margin of safety. Suppose Doral Corp.'s breakeven point is revenues of $I,IOO,OOO. Fixed costs are S660,000. Required: Compute the contribution margin percentage. Compute the selling price if variable costs ...

Pretend you are a manager of ford motor company you have

Pretend you are a manager of Ford Motor Company. You have been asked to determine whether a product (one of your choosing) should be manufactured in-house or outsourced to another vendor. Discuss the relevant costs you w ...

Senior ltd acquires all of the stock of juniorco for 30

Senior, Ltd., acquires all of the stock of JuniorCo for $30 million at the beginning of year 1. The group immediately elects to file income tax returns on a consolidated basis. Senior’s operations generate a $50 million ...

First place ltd is authorized to issue 2 million of 4 10

First place LTD is authorized to issue $2 million of 4% 10 year bonds payable. On December 31, 2014 when the market interest rate is 8% the Company issues $1.6 million of the bonds. First place LTD amortizes bond discoun ...

Do you understand the following distinctions briefly

Do you understand the following distinctions? Briefly explain in each case. a. Real versus financial assets. b. Investment versus financing decisions. c. Capital budgeting versus capital structure decisions. d. Primary v ...

Calculating transfer pricetrimble crane inc has a number of

Calculating Transfer Price Trimble Crane, Inc. has a number of divisions, including the Palm Division, a producer of hydraulic pumps, and Acer Division, a manufacturer of motors. Palm Division produces the h20-model pump ...

1 which of the following decreases a partnerrsquos basis in

1. Which of the following decreases a partner’s basis in the partner’s partnership interest? a. Additional contributions the partner makes during the year b. The partner’s allocable share of tax-exempt income c.  The par ...

Using the human life value method how much life insurance

Using the "Human Life Value" method, how much life insurance should you purchase if you have 45 years until retirement, an annual income of $61,500 received at the start of each years, and a time value of money of 7%? (A ...

  • 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

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate