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In: Finance
ABC Potato has come up with a new product, the Pet Potato (they are freeze-dried to...
ABC Potato has come up with a new product, the Pet Potato (they are freeze-dried to last longer). ABC Potato paid $120,000 for a marketing survey to determine the viability of the product. It is felt that Pet Potato will generate sales of $270,000 per year. The fixed costs associated with this will be $115,000 per year, and variable costs will amount to 30% of sales. The equipment necessary for production of the Pet Potato will cost $200,000 and will be depreciated in a straight-line manner for the four years of the product life (as with all fads, it is felt that the sales will end quickly). This is the only initial cost for production. ABC Potato is in a 40% tax bracket and has a required return of 9%.
1. Calculate the initial investment (CF0) for this project. (-$200,000)
2. Calculate the annual cash flows (ACF) for this project. ($64,400)
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jeff jeffy answered 1 year agoRelated Solutions
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marketing survey to determine the viability of the product. It is
felt that Potato Pet will generate sales of $815,000 per year. The
fixed costs associated with this will be $196,000 per year, and
variable costs will amount to 20 percent of sales. The equipment
necessary for production of the Potato Pet will cost $865,000 and...
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(they are freeze-dried to last longer). Pappy’s paid $120,000 for a
marketing survey to determine the viability of the product. It is
felt that Potato Pet will generate sales of $815,000 per year. The
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