Question
In: Finance
Breakeven cash inflows The One Ring Company, a leading producer of fine cast silver jewelry, is...
| Breakeven cash inflows The One Ring Company, a leading producer of fine cast silver |
| jewelry, is considering the purchase of new casting equipment that will allow it to expand |
| its product line. The up-front cost of the equipment is $750,000. The company |
| expects that the equipment will produce steady income throughout its 10-year life. |
| a. If One Ring requires a 9% return on its investment, what minimum yearly cash |
| inflow will be necessary for the company to go forward with this project? |
| b. How would the minimum yearly cash inflow change if the company required a |
| 12% return on its investment? |
Solutions
Expert Solution
Ans a) Minimum Yearly cashflow to go forward with this project is $116865.07
| 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |
| Cash outflow | $(750,000.00) | $ 116,865.07 | $ 116,865.07 | $ 116,865.07 | $ 116,865.07 | $ 116,865.07 | $ 116,865.07 | $ 116,865.07 | $ 116,865.07 | $ 116,865.07 | $ 116,865.07 |
| Present Value | $(750,000.00) | $ 107,215.66 | $ 98,362.99 | $ 90,241.28 | $ 82,790.16 | $ 75,954.28 | $ 69,682.82 | $ 63,929.20 | $ 58,650.64 | $ 53,807.92 | $ 49,365.07 |
| Net Present Value | $ 0.02 |
Ans b) Minimum Yearly cashflow to go forward with this project is $132738.13
| 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |
| Cash outflow | $(750,000.00) | $ 132,738.13 | $ 132,738.13 | $ 132,738.13 | $ 132,738.13 | $ 132,738.13 | $ 132,738.13 | $ 132,738.13 | $ 132,738.13 | $ 132,738.13 | $ 132,738.13 |
| Present Value | $(750,000.00) | $ 118,516.19 | $ 105,818.02 | $ 94,480.38 | $ 84,357.48 | $ 75,319.18 | $ 67,249.27 | $ 60,043.99 | $ 53,610.70 | $ 47,866.70 | $ 42,738.13 |
| Net Present Value | $ 0.04 |
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