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The FAR Corporation is considering a new project to manufacture solar powered widgets. Last year, the...
The FAR Corporation is considering a new project to manufacture solar powered widgets. Last year, the company paid a consulting firm $100,000 to conduct a market survey that suggested there is demand for solar powered widgets. The cost of the manufacturing equipment is $170,000. The cost of shipping and installation is an additional $10,000. The manufacturing equipment will be depreciated to $0 over its four year life using straight line depreciation. Sales are expected to be $300,000 per year and the cost of goods sold is expected to be 80% of sales. The project will require FAR to increase its inventory of raw materials from $0 to $30,000 at time t=0. At the end of three years, FAR plans on ending the project and selling the manufacturing equipment for $45,000. The marginal tax rate is 30% and the appropriate cost of capital for this project is 12%.
| Free Cash Flow at time t = 0: | |
| Free Cash Flow at time t = 1: | |
| Free Cash Flow at time t = 2: | |
| Free Cash Flow at time t = 3: | |
| NPV: |
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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1.
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1. Simes Innovations, Inc., is negotiating to purchase exclusive rights to manufacture and market a solar-powered...
1.
Simes
Innovations, Inc.,
is negotiating to purchase exclusive rights to manufacture and
market a solar-powered toy car. The car’s inventor has
offered Simesthe choice of either a one-time
payment of $1,500,000 today or a series of 5 year-end payments of
$385,000.
a. If
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capital of 9%, which form of payment should the company choose? b.
What yearly payment would make the two offers identical in value at
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c....
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