Question
In: Finance
Year Revenues 1 $60,000 2 40,000 3 30,000 4 10,000 Thereafter 0...
| Year | Revenues |
| 1 | $60,000 |
| 2 | 40,000 |
| 3 | 30,000 |
| 4 | 10,000 |
| Thereafter | 0 |
|
Expenses are expected to be 30% of revenues, and working capital required in each year is expected to be 10% of revenues in the following year. The product requires an immediate investment of $81,000 in plant and equipment. |
| a. | What is the initial investment in the product? Remember working capital. |
| Initial investment | $ |
|
b. |
If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm’s tax rate is 20%, what are the project cash flows in each year? (Enter your answers in thousands of dollars. Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| Year | Cash Flow |
| 1 | $ |
| 2 | |
| 3 | |
| 4 | |
| c. |
If the opportunity cost of capital is 10%, what is project NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| NPV | $ |
| d. |
What is project IRR? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| IRR | % |
Solutions
jeff jeffy answered 8 months agoRelated Solutions
Revenues generated by New Link product are forecast as follows: year 1: $40,000, year 2: $30,000,...
Revenues generated by New Link product are forecast as follows:
year 1: $40,000, year 2: $30,000, year 3: $20,000, year 4: $10,000.
Expenses are expected to be 40% of revenues and working capital
required in each year is expected to be 20% of revenues for the
following year. The product requires an immediate investment of
$45,000 in plant and equipment
a. What is the initial investment in the product? Remember
working capital
b. If the plant and equipment are depreciated...
Year Cash Flow Ins 1 $20,000 2 $40,000 3 $40,000 4 $20,000 5 $30,000 Rieger International...
Year Cash Flow Ins 1 $20,000 2 $40,000 3 $40,000 4 $20,000 5
$30,000 Rieger International is attempting to evaluate the
feasibility of investing $96000 in a piece of equipment that has a
5 -year life. The firm has estimated the cash inflows associated
with the proposal as shown in the following table. The firm has a 9
% cost of capital. a. Calculate the payback period for the proposed
investment. b. Calculate the net present value (NPV) for the...
Year Project A Project B 0 -$150,000 -$150,000 1 8,000 80,000 2 30,000 40,000 3 45,000...
Year
Project A
Project B
0
-$150,000
-$150,000
1
8,000
80,000
2
30,000
40,000
3
45,000
35,000
4
55,000
25,000
5
85,000
20,000
At what WACC would there be a break-even between the two
projects?
7.23%
8.48%
7.57%
7.89%
What is the NPV for Project A assuming the WACC is 10%?
$5,653.94
$10,522.64
$6,219.33
$11,574.90
What is the IRR for Project B?
11.2%
13.9%
11.6%
10.9%
What is the discounted payback period of Project A assuming the
WACC is 10%?...
Year Project A Project B 0 -$150,000 -$150,000 1 8,000 80,000 2 30,000 40,000 3 45,000...
Year
Project A
Project B
0
-$150,000
-$150,000
1
8,000
80,000
2
30,000
40,000
3
45,000
35,000
4
55,000
25,000
5
85,000
20,000
At what WACC would there be a break-even between the two
projects?
7.23%
8.48%
7.57%
7.89%
What is the NPV for Project A assuming the WACC is 10%?
$5,653.94
$10,522.64
$6,219.33
$11,574.90
What is the IRR for Project B?
11.2%
13.9%
11.6%
10.9%
What is the discounted payback period of Project A assuming the
WACC is 10%?...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $60,000 2...
Revenues generated by a new fad product are forecast as
follows:
Year
Revenues
1
$60,000
2
40,000
3
30,000
4
10,000
Thereafter
0
Expenses are expected to be 30% of revenues, and working capital
required in each year is expected to be 10% of revenues in the
following year. The product requires an immediate investment of
$81,000 in plant and equipment.
b. If the plant and equipment are depreciated over
4 years to a salvage value of zero using straight-line...
Year 0 Year 1 Year 2 Year 3 Revenues 363,688.342 363,688.342 363,688.342 - Cost...
Year 0
Year 1
Year 2
Year 3
Revenues
363,688.342
363,688.342
363,688.342
- Cost of Goods Sold
-150,000
-150,000
-150,000
- Depreciation
-80,000
-80,000
-80,000
= EBIT
133,688.342
133,688.342
133,688.342
- Taxes (35%)
-46,790.9196
-46,790.9196
-46,790.9196
= Unlevered net income
86,897.4221
86,897.4221
86,897.4221
+ Depreciation
80,000
80,000
80,000
- Additions to Net Working Capital
-20,000
-20,000
-20,000
- Capital Expenditures
-300,000
= Free Cash Flow
146,897.422
146,897.422
146,897.422
Visby Rides, a livery...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2...
Revenues generated by a new fad product are forecast as follows:
Year Revenues 1 $40,000 2 30,000 3 20,000 4 5,000 Thereafter 0
Expenses are expected to be 40% of revenues, and working capital
required in each year is expected to be 20% of revenues in the
following year. The product requires an immediate investment of
$49,000 in plant and equipment. Required: a. What is the initial
investment in the product? Remember working capital. b. If the
plant and equipment...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2...
Revenues generated by a new fad product are forecast as
follows:
Year
Revenues
1
$40,000
2
30,000
3
20,000
4
5,000
Thereafter
0
Expenses are expected to be 40% of revenues, and working capital
required in each year is expected to be 20% of revenues in the
following year. The product requires an immediate investment of
$49,000 in plant and equipment.
Required:
a. What is the initial investment in the
product? Remember working capital.
b. If the plant and equipment...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2...
Revenues generated by a new fad product are forecast as
follows:
Year
Revenues
1
$40,000
2
20,000
3
15,000
4
10,000
Thereafter
0
Expenses are expected to be 40% of revenues, and working capital
required in each year is expected to be 20% of revenues in the
following year. The product requires an immediate investment of
$46,000 in plant and equipment.
Required:
a. What is the initial investment in the
product? Remember working capital.
b. If the plant and equipment...
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2...
Revenues generated by a new fad product are forecast as follows:
Year Revenues 1 $40,000 2 30,000 3 20,000 4 10,000 Thereafter 0
Expenses are expected to be 40% of revenues, and working capital
required in each year is expected to be 10% of revenues in the
following year. The product requires an immediate investment of
$53,000 in plant and equipment. a. What is the initial investment
in the product? Remember working capital. b. If the plant and
equipment are...
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