Question
In: Finance
Serenity by Jan is considering expanding its operations. The expansion will require new equipment costing $750,000...
Serenity by Jan is considering expanding its operations. The expansion will require new equipment costing $750,000 that would be depreciation straightlin to zero over a 4 year life. The estimated after-tax proceeds on the sale this equipment is $124,000. The project requires an investment in net working capital of $40,000. The projected annaul operating cash flow is $230,000. Serenity by Jan's tax rate is 34%.
What are the annual cash flows for this project?
Year 0:
Year 1:
Year 2:
Year 3:
Year 4:
Solutions
Expert Solution
| Calculation of annual cash flows | |||||
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | |
| Cost of Equipment | -750,000 | ||||
| Investment in Working Capital | -40,000 | ||||
| Annual Operating cash flows | 230,000 | 230,000 | 230,000 | 230,000 | |
| Recovery of working capital | 40,000 | ||||
| After tax salvage value of equipment | 124,000 | ||||
| Annual cash flows | -790,000 | 230,000 | 230,000 | 230,000 | 394,000 |
| Note: Depreciation and tax costs are already considered in calculating annual operating cash flows, hence, no adjustment is required now |
jeff jeffy answered 1 year agoRelated Solutions
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $643,000...
Lakeside Winery is considering expanding its winemaking
operations. The expansion will require new equipment costing
$643,000 that would be depreciated on a straight-line basis to zero
over the 4-year life of the project. The equipment will have a
market value of $168,000 at the end of the project. The project
requires $38,000 initially for net working capital, which will be
recovered at the end of the project. The operating cash flow will
be $197,400 a year. What is the net...
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $665,000...
Lakeside Winery is considering expanding its winemaking
operations. The expansion will require new equipment costing
$665,000 that would be depreciated on a straight-line basis to zero
over the 6-year life of the project. The equipment will have a
market value of $176,000 at the end of the project. The project
requires $46,000 initially for net working capital, which will be
recovered at the end of the project. The operating cash flow will
be $151,600 a year. What is the net...
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $651,000
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $651,000 that would be depreciated on a straight-line basis to zero over the 5-year life of the project. The equipment will have a market value of $169,000 at the end of the project. The project requires $39,000 initially for net working capital, which will be recovered at the end of the project. The operating cash flow $165,300 a year. What is the net present value...
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $673,000...
Lakeside Winery is
considering expanding its winemaking operations. The expansion will
require new equipment costing $673,000 that would be depreciated on
a straight-line basis to zero over the 4-year life of the project.
The equipment will have a market value of $180,000 at the end of
the project. The project requires $50,000 initially for net working
capital, which will be recovered at the end of the project. The
operating cash flow will be $215,900 a year. What is the net...
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $665,000...
Lakeside Winery is considering expanding its winemaking operations.
The expansion will require new equipment costing $665,000 that
would be depreciated on a straight-line basis to zero over the
6-year life of the project. The equipment will have a market value
of $176,000 at the end of the project. The project requires $46,000
initially for net working capital, which will be recovered at the
end of the project. The operating cash flow will be $151,600 a
year. What is the net...
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $695,000...
Lakeside Winery is considering expanding its winemaking
operations. The expansion will require new equipment costing
$695,000 that would be depreciated on a straight-line basis to zero
over the 6-year life of the project. The equipment will have a
market value of $191,000 at the end of the project. The project
requires $61,000 initially for net working capital, which will be
recovered at the end of the project. The operating cash flow will
be $164,600 a year. What is the net...
Argyl Manufacturing is evaluating the possibility of expanding its operations. This expansion will require the purchase...
Argyl Manufacturing is evaluating the possibility of expanding
its operations. This expansion will require the purchase of land at
a cost of $100,000. A new building will cost $110,000 and will be
depreciated on a straight-line basis over 20 years to a salvage
value of $0. Actual land salvage at the end of 20 years is expected
to be $150,000. Actual building salvage at the end of 20 years is
expected to be $140,000. Equipment for the facility is expected...
Bob’s Burgers is considering expanding operations by establishing a delivery business. This will require the purchase...
Bob’s Burgers is considering expanding operations by
establishing a delivery business. This will require the purchase of
new hot plates, vats and a delivery vehicle that will cost a total
of $48,000, including installation. The items will be depreciated
using the straight-line method (the company has been decided to
work out the effective life itself rather than use an effective
life determined by the Commissioner of Taxation). The equipment and
vehicle are expected to need replacing in five years, but...
Greencastle Pizzeria is considering expanding operations by establishing a delivery business. This will require the purchase...
Greencastle Pizzeria is considering expanding operations by
establishing a delivery business. This will require the purchase of
an oven that will cost $60,000, including installation. The oven is
expected to last five years, have a $6,000 residual value, and will
be depreciated using the straight-line method. Cash flows
associated with the delivery business are as follows:
Item
Year 1
Year 2
Year 3
Year 4
Year 5
Revenue
$78,000
$79,560
$93,884
$105,600
$114,290
Ingredients
(30,120
)
(33,120
)
(36,474
)...
Cinrich Pizzeria is considering expanding operations by establishing a delivery business. This will require the purchase...
Cinrich Pizzeria is considering expanding operations by
establishing a delivery business. This will require the purchase of
an oven that will cost $53,000, including installation. The oven is
expected to last five years, have a $5,300 residual value, and will
be depreciated using the straight-line method. Cash flows
associated with the delivery business are as follows:
Item
Year 1
Year 2
Year 3
Year 4
Year 5
Revenue
$68,900
$70,278
$82,929
$93,280
$100,955
Ingredients
(26,606
)
(29,256
)
(32,218
)...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- We are expanding as clothing sport company with stylish sport outfits to austrailia Please outline a...
- In Susan Glaspell’s 1916 play, Trifles, there seem to be many signs that Minnie Wright is...
- How does public policy impact the approach to problem solving?
- A proton is fired from far away toward the nucleus of a mercury atom. Mercury is...
- Please discuss the independence of the Fed.
- 15- Propane gas flows into a combustion chamber at a rate 250 L/min at 2.0 atmand...
- Springer Anderson Gymnastics prepared its annual financial statements dated December 31. The company reported its inventory...
ADVERTISEMENT