Question
In: Finance
The company is considering a five-year project that will require $680,000 for new manufacturing equipment that...
The company is considering a five-year project that will require $680,000 for new manufacturing equipment that will be depreciated straight-line to a zero-book value over five years (depreciation rate is 20% per year). At the end of the project, the equipment can be sold for 15 percent of its original cost. The project requires an initial investment in net working capital of $90,000 (all of which will be recovered at the end of the project). The project is expected to generate annual sales of $845,000 with annual costs of $545,000. The tax rate is 25 percent and the required rate of return is 17.5 percent. Instructions: Complete the pro forma and determine total cash flows for each year of project’s life. Calculate initial outlay (total cash flow in Year 0), after-tax salvage value in Year 5, and NPV of the project. Explain your decision whether you recommend to accept or reject the project.
Solutions
jeff jeffy answered 6 months agoRelated Solutions
A project will require $511,800 for manufacturing equipment. The equipment is classified as five-year property for...
A project will require $511,800 for manufacturing equipment. The
equipment is classified as five-year property for MACRS. The
project has a three-year life. At the end of the project, the
equipment will be worth about 20 percent of what we paid for it. We
will have to invest $47,000 in net working capital at the start.
After that, net working capital requirements will be 10 percent of
sales. All additional investments in net working capital will be
recovered at the...
A project will require $511,800 for manufacturing equipment. The equipment is classified as five-year property for...
A project will require $511,800 for manufacturing equipment. The
equipment is classified as five-year property for MACRS. The
project has a three-year life. At the end of the project, the
equipment will be worth about 20 percent of what we paid for it. We
will have to invest $47,000 in net working capital at the start.
After that, net working capital requirements will be 10 percent of
sales. All additional investments in net working capital will be
recovered at the...
Cardinal Company is considering a five-year project that would require a $2,890,000 investment in equipment with...
Cardinal Company is considering a five-year project that would
require a $2,890,000 investment in equipment with a useful life of
five years and no salvage value. The company’s discount rate is
12%. The project would provide net operating income in each of five
years as follows:
Sales
$
2,739,000
Variable expenses
1,100,000
Contribution margin
1,639,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs
$
641,000
Depreciation
578,000
Total fixed expenses
1,219,000
Net operating income
$
420,000
3. What is...
Cardinal Company is considering a five-year project that would require a $2,955,000 investment in equipment with...
Cardinal Company is considering a five-year project that would
require a $2,955,000 investment in equipment with a useful life of
five years and no salvage value. The company’s discount rate is
18%. The project would provide net operating income in each of five
years as follows:
Sales
$
2,865,000
Variable expenses
1,015,000
Contribution margin
1,850,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs
$
750,000
Depreciation
591,000
Total fixed expenses
1,341,000
Net operating income
$
509,000
6. What is...
Cardinal Company is considering a five-year project that would require a $2,500,000 investment in equipment with...
Cardinal Company is considering a five-year project that would
require a $2,500,000 investment in equipment with a useful life of
five years and no salvage value. The company’s discount rate is
12%. The project would provide net operating income in each of five
years as follows:
Sales
$
2,853,000
Variable expenses
1,200,000
Contribution margin
1,653,000
Fixed expenses:
Advertising, salaries, and other
fixed out-of-pocket costs
$
790,000
Depreciation
500,000
Total fixed expenses
1,290,000
Net operating income
$
363,000
3. What is...
Cardinal Company is considering a five-year project that would require a $2,870,000 investment in equipment with...
Cardinal Company is considering a five-year project that would
require a $2,870,000 investment in equipment with a useful life of
five years and no salvage value. The company’s discount rate is
12%. The project would provide net operating income in each of five
years as follows:
Sales
$
2,861,000
Variable
expenses
1,101,000
Contribution
margin
1,760,000
Fixed expenses:
Advertising,
salaries, and other
fixed out-of-pocket costs
$
705,000
Depreciation
574,000
Total fixed
expenses
1,279,000
Net operating
income
$...
Cardinal Company is considering a five-year project that would require a $2,500,000 investment in equipment with...
Cardinal Company is considering a five-year project that would
require a $2,500,000 investment in equipment with a useful life of
five years and no salvage value. The company’s discount rate is
12%. The project would provide net operating income in each of five
years as follows:
Sales
$
2,853,000
Variable expenses
1,200,000
Contribution margin
1,653,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs
$
790,000
Depreciation
500,000
Total fixed expenses
1,290,000
Net operating income
$
363,000
1.If the equipment...
Cardinal Company is considering a five-year project that would require a $2,890,000 investment in equipment with...
Cardinal Company is considering a five-year project that would
require a $2,890,000 investment in equipment with a useful life of
five years and no salvage value. The company’s discount rate is
12%. The project would provide net operating income in each of five
years as follows: Sales $ 2,739,000 Variable expenses 1,100,000
Contribution margin 1,639,000 Fixed expenses: Advertising,
salaries, and other fixed out-of-pocket costs $ 641,000
Depreciation 578,000 Total fixed expenses 1,219,000 Net operating
income $ 420,000 part 1. If...
Cardinal Company is considering a five-year project that would require a $2,870,000 investment in equipment with...
Cardinal Company is considering a five-year project that would
require a $2,870,000 investment in equipment with a useful life of
five years and no salvage value. The company’s discount rate is
12%. The project would provide net operating income in each of five
years as follows:
Sales
$
2,861,000
Variable expenses
1,101,000
Contribution margin
1,760,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs
$
705,000
Depreciation
574,000
Total fixed expenses
1,279,000
Net operating income
$
481,000
Click here to...
Cardinal Company is considering a five-year project that would require a $2,855,000 investment in equipment with...
Cardinal Company is considering a five-year project that would
require a $2,855,000 investment in equipment with a useful life of
five years and no salvage value. The company’s discount rate is
14%. The project would provide net operating income in each of five
years as follows:
Sales
$
2,867,000
Variable expenses
1,125,000
Contribution margin
1,742,000
Fixed expenses:
Advertising, salaries, and other
fixed out-of-pocket costs
$
706,000
Depreciation
571,000
Total fixed expenses
1,277,000
Net operating income
$
465,000
Click the link...
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