Question

In: Finance

Source: What yearly cash flows are relevant for this investment decision? Do not forget the effect...


Source:

  1. What yearly cash flows are relevant for this investment decision? Do not forget the effect of taxes and the initial investment amount. Complete the table below using the detail summarized below:
    1. Investment:
      1. Initial Investment - $16M 2016, $2M 2017
      2. Working Capital - 10% of Incremental Sales
    2. Operating Savings - $2M 2017, $3.5M 2018-2022
    3. Sales Revenue - $4M 20017, $10M 2018-2022
    4. Expenses - CGS – 75% of Revenue, SG&A - 5% of Revenue
    5. Salvage:
      1. Working Capital - recoverable at cost
      2. Initial Investment - 10% or $1.8M before tax, $1.08M after taxes
    6. Depreciation – Straight Line over 6 years, no salvage, start in 2017

2016

2017

2018

2019

2020

2021

2022

Investment:

Capital Outlay

Net Working Capital (10% Sales)

Total Investment

Investment Recovery :

    Equipment Salvage

    Net Working Capital (full recovery)

Earnings before Interest and Taxes (EBIT):

Sales Revenue

Cost of Goods Sold (75% Sales)

SG&A (5% Sales)

Operating Savings

Depreciation ($18,000/6)

Total Costs & Expenses

   EBIT

- Taxes (40%)

   NOPAT

+ Depreciation

- Investment

= Free Cash Flow

Solutions

Expert Solution

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

What yearly cash flows are relevant for this investment decision? Do not forget the effect of...
What yearly cash flows are relevant for this investment decision? Do not forget the effect of taxes and the initial investment amount. Complete the table below using the detail summarized below: Investment :Initial Investment - $16M 2016, $2M 2017/Working Capital - 10% of Incremental Sales Operating Savings - $2M 2017, $3.5M 2018-2022 Sales Revenue - $4M 20017, $10M 2018-2022 Expenses - CGS – 75% of Revenue, SG&A - 5% of Revenue Salvage:Working Capital - recoverable at cost/Initial Investment - 10%...
How do we determine if cash flows are relevant to the capital budgeting decision? What are...
How do we determine if cash flows are relevant to the capital budgeting decision? What are sensitivity analysis, scenario analysis, break-even analysis, and simulation? Why are these analyses important, and how should they be used?
1. How do we determine if cash flows are relevant to the capital budgeting decision? 2....
1. How do we determine if cash flows are relevant to the capital budgeting decision? 2. What are the different methods for computing operating cash flow and when are they important? 3. How should cash flow and discount rates be matched when inflation is present? 4. What is the equivalent annual cost and when should it be used?
A corporation is evaluating the relevant cash flows for a capital budgeting decision and must estimate...
A corporation is evaluating the relevant cash flows for a capital budgeting decision and must estimate the terminal cash flow. The proposed machine will be disposed of at the end of its usable life of five years at an estimated sale price of $15,000. The machine has an original purchase price of $80,000, installation cost of $20,000, and will be depreciated under the five-year MACRS. Net working capital is expected to decline by $5,000. The firm has a 40 percent...
A company must develop the relevant cash flows for a replacement capital investment proposal. The proposed...
A company must develop the relevant cash flows for a replacement capital investment proposal. The proposed asset costs $50,000 and has installation costs of $3,000. The asset will be depreciated using a five-year recovery schedule. The existing equipment, which originally cost $25,000 and will be sold for $10,000, has been depreciated using an MACRS five-year recovery schedule and three years of depreciation has already been taken. The new equipment is expected to result in incremental before-tax net profits of $15,000...
A company must develop the relevant cash flows for a replacement capital investment proposal. The proposed...
A company must develop the relevant cash flows for a replacement capital investment proposal. The proposed asset costs $50,000 and has installation costs of $3,000. The asset will be depreciated using a five-year recovery schedule. The existing equipment, which originally cost $25,000 and will be sold for $10,000, has been depreciated using an MACRS five-year recovery schedule and three years of depreciation has already been taken. The new equipment is expected to result in incremental before-tax net profits of $15,000...
What are relevant cash flows? Why should we only include these cash flows in our capital...
What are relevant cash flows? Why should we only include these cash flows in our capital budgeting analysis? Please also give some examples.
By the use of relevant examples, differentiate between: a. the investment decision and the finance decision....
By the use of relevant examples, differentiate between: a. the investment decision and the finance decision. b. current assets and non-current assets.
CME Inc. must develop the relevant cash flows for a replacement capital investment proposal. The proposed...
CME Inc. must develop the relevant cash flows for a replacement capital investment proposal. The proposed asset costs $50,000 and has installation costs of $3,000. The asset will be depreciated using a five-year recovery schedule. The existing equipment, which originally cost $25,000 and will be sold for $10,000, has been depreciated using an MACRS five-year recovery schedule and three years of depreciation has already been taken. The new equipment is expected to result in incremental before-tax net profits of $15,000...
7.) What is the profitability index for the following set of cash flows if the relevant...
7.) What is the profitability index for the following set of cash flows if the relevant discount rate is 10 percent? What if the discount rate is 15 percent? If it is 22 percent? Year Cash Flow 0 ?$15,300 1       9,400 2       7,600 3       4,300
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT