Question
In: Accounting
Company A is considering an investment in a new production line which will entail an immediate...
Company A is considering an investment in a new production line
which will entail an immediate capital
expenditure of €1,200,000, an increase in accounts receivables by
€100,000 and a decrease in accounts
payable by €100,000. The production line is going to be depreciated
on a straight-line basis over 5 years
with no expected salvage value. The sales and operating expenses of
the company are expected to
increase by €600,000 and €100,000 per year respectively, over the
5-year life of the project. The working
capital is going to be recovered at the end of the useful life of
the capital project in year 5. If Company
A is in the 20% tax bracket and the cost of capital is 10%.
What is the investment cost?
What are the net cash flows of the project on an annual basis for years 1 to 4?
What is the net cash flow of the project for year 5?
What is the present value of all future net cash flows of the project?
What is the profitability index? (Assume two decimal points and no rounding)
Solutions
ekkarill92 answered 2 years agoRelated Solutions
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