Question

In: Finance

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden...

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 8,700 in the first year, with growth of 5 percent each year for the next five years. Production of these lamps will require $52,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $112,000 per year, variable production costs are $25 per unit, and the units are priced at $55 each. The equipment needed to begin production will cost $192,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 34 percent and the required rate of return is 30 percent.

What is the NPV of this project?

Solutions

Expert Solution

Time line 0 1 2 3 4 5
Cost of new machine 192000
Initial working capital -52000
=Initial Investment outlay 140000
100.00%
Unit sales 0 0 0 0 0
Profits =no. of units sold * (sales price - variable cost) 0 0 0 0 0
Fixed cost -112000 -112000 -112000 -112000 -112000
-Depreciation Cost of equipment/no. of years 38400 38400 38400 38400 38400 0 =Salvage Value
=Pretax cash flows -73600 -73600 -73600 -73600 -73600
-taxes =(Pretax cash flows)*(1-tax) -48576 -48576 -48576 -48576 -48576
+Depreciation -38400 -38400 -38400 -38400 -38400
=after tax operating cash flow -86976 -86976 -86976 -86976 -86976
reversal of working capital 52000
+Tax shield on salvage book value =Salvage value * tax rate 0
=Terminal year after tax cash flows 52000
Total Cash flow for the period 140000 -86976 -86976 -86976 -86976 -34976
Discount factor= (1+discount rate)^corresponding period 1 1.3 1.69 2.197 2.8561 3.71293
Discounted CF= Cashflow/discount factor 140000 -66904.6154 -51465.0888 -39588.5298 -30452.71524 -9420.054
NPV= Sum of discounted CF= -57831.00

jeff jeffy answered 5 months ago
Next > < Previous

Related Solutions

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 8,100 in the first year, with growth of 5 percent each year for the next five years. Production of these lamps will require $46,000 in...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 7,000 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require GH¢35,000 in...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 8,000 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require $45,000 in...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 7,600 in the first year, with growth of 5 percent each year for the next five years. Production of these lamps will require $41,000 in...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 10,200 in the first year, with growth of 7 percent each year for the next five years. Production of these lamps will require $49,000 in...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 10,800 in the first year, with growth of 7 percent each year for the next five years. Production of these lamps will require $61,000 in...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 10,700 in the first year, with growth of 6 percent each year for the next five years. Production of these lamps will require $59,000 in...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 10,800 in the first year, with growth of 7 percent each year for the next five years. Production of these lamps will require $61,000 in...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 8,000 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require $45,000 in...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden...
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 8,500 in the first year, with growth of 7 percent each year for the next five years. Production of these lamps will require $50,000 in...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT