Question
In: Finance
The Ashton Group is developing a new product line. Initial costs for the line are $83191....
The Ashton Group is developing a new product line. Initial costs for the line are $83191. Annual utilities will be $29917. The company plans to concentrate on marketing for the first 3 years at a cost of $11746 per year.
Profits are anticipated to be zero for the first few years. It is estimated the product line will finally have a profit of $453436 at the end of year 6 and profits will continue to increase by 18% each subsequent year.
The new product line will require 7 employees for the first 8 years. The company will then hire 3 additional employees for the remainder of the product line lifespan. Employees are paid an average of $52594 per year. Using a lifespan of 18 years and a nominal annual interest rate of 6% compounded annually, what is the equivalent uniform annual worth of the new product line?
Notes: Count the years carefully when calculating employee expense after the additional employees are hired. Count the years carefully when calculating the number of years of profit.
Solutions
Expert Solution
EUAC=NPV*A/P,6%,18 =
|
WORKINGS
| Year | Cash flow | Utilities | Marketing | Profits | Employee cost | Total Cash flows |
| 0 | -83191 | -83191 | ||||
| 1 | -29917 | -11746 | -368158 | -409821 | ||
| 2 | -29917 | -11746 | -368158 | -409821 | ||
| 3 | -29917 | -11746 | -368158 | -409821 | ||
| 4 | -29917 | -368158 | -398075 | |||
| 5 | -29917 | -368158 | -398075 | |||
| 6 | -29917 | 453436 | -368158 | 55361 | ||
| 7 | -29917 | 535054.5 | -368158 | 136979.48 | ||
| 8 | -29917 | 631364.3 | -368158 | 233289.2864 | ||
| 9 | -29917 | 745009.9 | -525940 | 189152.858 | ||
| 10 | -29917 | 879111.6 | -525940 | 323254.6324 | ||
| 11 | -29917 | 1037352 | -525940 | 481494.7262 | ||
| 12 | -29917 | 1224075 | -525940 | 668218.0369 | ||
| 13 | -29917 | 1444409 | -525940 | 888551.5436 | ||
| 14 | -29917 | 1704402 | -525940 | 1148545.081 | ||
| 15 | -29917 | 2011194 | -525940 | 1455337.456 | ||
| 16 | -29917 | 2373209 | -525940 | 1817352.458 | ||
| 17 | -29917 | 2800387 | -525940 | 2244530.161 | ||
| 18 | -29917 | 3304457 | -525940 | 2748599.85 | ||
| NPV | $3,214,152.58 | |||||
| EUAC | $296,987.70 |
FORMULAE USED
jeff jeffy answered 1 year agoRelated Solutions
The Ashton Group is developing a new product line. Initial costs for the line are $94693....
The Ashton Group is developing a new product line. Initial costs
for the line are $94693. Annual utilities will be $34518. The
company plans to concentrate on marketing for the first 2 years at
a cost of $11430 per year. Profits are anticipated to be zero for
the first few years. It is estimated the product line will finally
have a profit of $469315 at the end of year 6 and profits will
continue to increase by 20% each subsequent...
The Ashton Group is developing a new product line. Initial costs for the line are $87985....
The Ashton Group is developing a new product line. Initial costs
for the line are $87985. Annual utilities will be $34193. The
company plans to concentrate on marketing for the first 4 years at
a cost of $13812 per year.
Profits are anticipated to be zero for the first few years. It
is estimated the product line will finally have a profit of $466925
at the end of year 5 and profits will continue to increase by 19%
each subsequent...
A company is developing a new product. The development of the product requires an initial investment...
A company is developing a new product. The development of the
product requires an initial investment of $160,000 with further
investments of $90,000 in year 1, $60,000 in year 2 and $10,000 in
year 3. The company will launch the product on the market in year 3
and the company expects annual profits of $60,000 from year 3 to
year 7. At the end of year 7, the company expects to terminate the
production line and sell it to a...
An engineering group needs to set up an assembly line to produce a new product. The...
An engineering group needs to set up an assembly line to produce
a new product. The following table describes the relationships
between the activities, their predecessors, and the estimated
activity times (in weeks) for this project. (10 points)
Activity
Immediate
Predecessors)
Optimistic
(Weeks)
Most Likely
(Weeks)
Pessimistic
(Weeks)
A
---
4
7
10
B
A
2
8
20
C
A
8
12
16
D
B
1
2
3
E
D, C
6
8
22
F
C
2
3
4
G...
London Yarn is developing a new line of women's causal dresses. Estimated overhead costs are $400,000...
London Yarn is developing a new line of women's causal dresses.
Estimated overhead costs are $400,000 while each dress will cost
$10 in labor and materials. They want to know if they should
continue with this project. Show all calculations.
(25 pts) If the price is set at $90, how many dresses do they
need to sell to breakeven?
(25 pts) If the price is set at $90, how many dresses do they
need to sell to earn a target...
Pak Foods Ltd. is considering a project of new product line that requires the initial cost...
Pak Foods Ltd. is considering a project of new product line that
requires the initial cost of Rs. 15 million. The company is
considering to raise the capital from debt and equity financing (no
preferred stock). The target capital structure is 60% equity and
40% debt. The interest rate on new debt is 8.00%, and the cost of
equity is 15.00%, and the tax rate is 40%. The project
has an economic life of 7 years and has the following...
Colorado Springs Technology must choose between two methods of producing a new product. The initial costs...
Colorado Springs Technology must choose between two methods of
producing a new product. The initial costs and year-end cash flow
are as follows:
Year
0
1
2
3
4
5
Method A
--$1,000,000
210,000
250,000
300,000
525,000
600,000
Method B
--$1,000,000
410,000
375,000
475,000
225,000
195,000
The company’s WACC is 10 percent. Calculate the NPV, IRR &
MIRR for each method.
Joe’s Technology must choose between two repeatable methods of producing a new product. The initial costs...
Joe’s Technology must choose between two repeatable
methods of producing a new product. The initial costs and year-end
cash benefits are as follows:
Year
0
1
2
3
4
5
Method
M
-$1,500,000
600,000
750,000
550,000
200,000
Method
N
-$2,500,000
1,200,000
950,000
700,000
400,000
300,000
Assume all cash flows occur at year-end and the
company’s required return is 6.57 percent.
Please compute the net present value ______________ and
the equivalent annuity ________________ for Method...
Joe’s Technology must choose between two repeatable methods of producing a new product. The initial costs...
Joe’s Technology must choose between two repeatable
methods of producing a new product. The initial costs and year-end
cash benefits are as follows:
Year
0
1
2
3
4
5
Method
M
-$1,500,000
600,000
750,000
550,000
200,000
Method
N
-$2,500,000
1,200,000
950,000
700,000
400,000
300,000
Assume all cash flows occur at year-end and the
company’s required return is 6.57 percent.
Please compute the net present value ______________ and
the equivalent annuity ________________ for Method...
Seong Hotels is interested in developing a new hotel is Seoul. The initial investment of the...
Seong Hotels is interested in developing a new hotel is Seoul.
The initial investment of the project is $20 million, but cashflows
could differ if the government imposes a hotel tax. There is a 60%
chance a hotel tax will be imposed and cash flows would be $2
million per year for 20 years. However, there is a 40% chance there
will not be a tax imposed so cash flows would be $4 million per
year for 20 years. They...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- At week 24 of a project to shoot a television commercial what should the expenditures be?...
- Explain whether acid can catalyze each of the following reactions; i.e., whether the reaction is faster...
- Questions: How does Andrew Carnegie justify the contrast between the wealthy and the working poor? Provide...
- As you go through your daily activities, look for examples of people engaged in conflict. You...
- Summarize key functions of managements in your own words (Planning, Organizing, Leading and Controlling) Please don't...
- For college physics. Please write in paragraph form, typed. Thanks! Respond to the following: In your...
- What is the difference between a bitmap image and a vector image? In terms of processing...
ADVERTISEMENT