Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem: We are considering the introduction of a new product. Currently we are in the 34% marginal tax bracket with a 15% required rate of return or cost of capital. This project is expected to last five years and them, because this is somewhat of a fad product, be terminated. The following data describes the new project:

Cost of new plant and equipment

$7,900,000

 

Shipping and installation costs

$100,000

 

Unit sales

 

 

 

YEAR

UNITS SOLD

 

1

70,000

 

2

120,000

 

3

140,000

 

4

80,000

 

5

60,000

Sales price per unit

$300/unit in years 1 through 4, $260/unit in year 5

Variable cost per unit

$480/unit

 

Annual fixed costs

$200,000

 

Working-capital requirements

There' will be an initial working-capital requirement of $1000, 000 just to get production started. For each year, the total investment in net working capital will be equal to 10 percent of the dollar value of sales for that year. Thus, the investment in working capital will increase during year 1 through 3, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project at the end of year 5.

The depreciation method

Use the simplified straight-line method over 5 years. Suppose that the plant and equipment will have no salvage value after 5 years.

[A]      Should Caledonia focus on cash flow or accounting profits in making its capital budgeting decisions? Should the company be interested in incremental cash flows, incremental profits, total free cash flows, or total profiles?

[B]      Compute the differential cash flows over the project's life?

[C]      Compute the terminal cash flow?

[D]      Make a cash flow diagram for this project.

[E]      Compute its net present value?

[F]      Compute its internal rate of return?

[G]     Should the project be accepted? Why or why not?

[H]     In capital budgeting, risk can be measured from three perspectives. What are those three?

[I]      How does depreciation affect free cash flows?

[J]      How do sunk costs affect the determination of cash flows?

[K]     Compute the project's initial outlay?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M918499

Have any Question? 


Related Questions in Basic Finance

You wish to establish a scholarship fund for students at

You wish to establish a scholarship fund for students at Clever College. The fund wouldpay an annual scholarship that would start at $5,000 awarded one year from now andincrease by 3.5% per year forever. If the fund coul ...

A building owner is evaluating the following four

A building owner is evaluating the following four alternatives for leasing space in an office building for the next five years. Write a two-three page paper and prepare an Excel spreadsheet evaluating each of the four di ...

Explains how a portion of your income is withheld

Explains how a portion of your income is withheld throughout the year by your employer, as required by the Internal Revenue Service (IRS). You may have some flexibility on how much income can be withheld. A psychological ...

A company has 1 00000 to invest in new rampd projects the

A company has $1, 00,000 to invest in new R&D projects. The company wants to determine what set of projects should be selected.   The following table summarizes the initial cost and revenue potential for each of the proj ...

For each of the following six scenarios say whether the

For each of the following six scenarios, say whether the value of the dollar will appreciate, depreciate, or remain the same relative to the Japanese yen. Explain each answer. Assume that exchange rates are freely floati ...

Two astronauts with masses m1 and m2 say goodbye and push

Two astronauts with masses m1 and m2 say goodbye and push each other off in the space. The initial velocity of both v0 and after the push off the astronaut with the mass m1 moves with the velocity v1 in the same directio ...

Most languages are case sensitive so keywords can be

Most languages are case sensitive, so keywords can be written only one way, and the regular expressions describing their lexemes are very simple. However, some languages, like SQL, are case insensitive, so a keyword can ...

Name at least four factors which can reduce in-service

Name at least four factors which can reduce in-service clamping force ? Name at least three factors which can be prevented or at least reduced by sufficient in-service clamping force ? Name at least four factors which de ...

1 why is it important for the financial manager to

1. Why is it important for the financial manager to understand the inventory control techniques used by production/operations managers? How does controlling inventory impact a firm's profitability? 2. What role does the ...

Consider a period in which the us dollar weakens against

Consider a period in which the US dollar weakens against most foreign currencies. How does this affect the reported earnings of a US-based MNC with subsidiaries all over the world? Consider a period in which the US dolla ...

  • 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

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

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen