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XYZ Inc. is considering producing a new handheld, wireless internet device. Management spent $3.5 million last...
XYZ Inc. is considering producing a new handheld, wireless internet device. Management spent $3.5 million last year on test marketing and has developed the following set of forecasts. Total cash costs (excluding depreciation) of the device will be $30 each, and they will sell them all for $100 each. They can produce and sell 55,000 devices each year for the next five years. XYZ would have to prepare a manufacturing facility and buy necessary equipment, which would cost $10 million to be spent immediately and be depreciable over 10 years using straight-line depreciation. They would have to invest $2.5 million in inventory beginning today, and this amount would not change over the life of the project. In 5 years, they will quit, dispose of the plant for $1.5 million, and recover working capital. The tax rate is 40%, the firm uses stock financing, and stockholders require a 15% return. Should XYZ accept the project? Show any needed calculations and justify the answer.
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jeff jeffy answered 5 months agoRelated Solutions
Capital budgeting (simpler practice problem). XYZ Inc. is considering producing a new handheld, wireless internet device....
Capital budgeting (simpler practice problem).
XYZ Inc. is considering producing a new handheld, wireless internet
device. Management spent $3.5 million last year on test marketing
and has developed the following set of forecasts. Total cash costs
(excluding depreciation) of the device will be $30 each, and they
will sell them all for $100 each. They can produce and sell 55,000
devices each year for the next five years. XYZ would have to
prepare a manufacturing facility and buy necessary equipment,...
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last for 10 years. Variable costs for the machine are 15% of sales
and fixed costs are $1,000,000 per year. The sales for each machine
will be $5,000,000 per year. The required rate of return is 10%,...
Assume that XYZ, Inc. Corporation, Inc. is considering a new project with the following projected cash...
Assume that XYZ, Inc. Corporation, Inc. is considering a new
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Year 1: 110,000,000
Year 2: 85,000,000
Year 3: 90,000,000
Year 4: -40,000,000
Year 5: 150,000,000
The company has already spent $4,200,000 in research and
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surveys and tests of the product in 30 states.
Based on the previous fruit juice products and the results in
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Equipment to produce Elite will cost FFC $500,000,...
XYZ Inc. is considering a project to manufacture 2 million boxes of surgical face masks annually...
XYZ Inc. is considering a project to manufacture 2 million boxes
of surgical face masks annually for five years, for selling price
of $20 per box. To get the project started, XYZ must invest $15
million in new plant and equipment. Annual fixed costs are
estimated to be $6 million and variable costs are estimated to be
$12 per box. The CCA rate for the plant and equipment is 30%, and
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XYZ Inc. is considering a project to manufacture 2 million boxes of surgical face masks annually...
XYZ Inc. is considering a project to manufacture 2 million boxes
of surgical face masks annually for five years, for selling price
of $20 per box. To get the project started, XYZ must invest $15
million in new plant and equipment. Annual fixed costs are
estimated to be $6 million and variable costs are estimated to be
$12 per box. The CCA rate for the plant and equipment is 30%, and
the firm's marginal tax rate is 35%. After five...
XYZ Inc. is considering a project to manufacture 2 million boxes of surgical face masks annually...
XYZ Inc. is considering a project to manufacture 2 million boxes
of surgical face masks annually for five years, for selling price
of $20 per box. To get the project started, XYZ must invest $15
million in new plant and equipment. Annual fixed costs are
estimated to be $6 million and variable costs are estimated to be
$12 per box. The CCA rate for the plant and equipment is 30%, and
the firm's marginal tax rate is 35%. After five...
XYZ Inc. is considering a project to manufacture 2 million boxes of surgical face masks annually...
XYZ Inc. is considering a project to manufacture 2 million boxes
of surgical face masks annually for five years, for selling price
of $20 per box. To get the project started, XYZ must invest $15
million in new plant and equipment. Annual fixed costs are
estimated to be $6 million and variable costs are estimated to be
$12 per box. The CCA rate for the plant and equipment is 30%, and
the firm's marginal tax rate is 35%. After five...
1) Company XYZ purchased new plant and equipment totaling $225 million dollars last year. The firm...
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XYZ Inc. is considering a new project that has the following cash flow data. What is...
XYZ Inc. is considering a new project that has the following
cash flow data. What is the project's IRR?
Year 0 1 2 3 4 5
Cash Flows -1043 340 340 340 340 340
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