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Pappy's Potato has come up with a new product, the Potato Pet that they are considering...
Pappy's Potato has come up with a new product, the Potato Pet that they are considering launching. The company has determined they will need a fixed asset investment at the beginning of the project of $260,000. This asset will last for four years which is the life of the project. Also, they will need to have more net working capital (NWC) of which they have estmated an amount of $16,500 for this purpose. The NWC will be recovered when the project is over. The Accounting Department has indicated that the depreciation method to be used for the fixed asset is the straight-line method over the life of the project and the asset is depreciated to a zero book value. Even though the asset is depreciated to a zero book value, the company estimates it will have a salvage value at the end of the project of $50,000. The OCF (operating cash flow) for each year of the project is estimated to be $82,500. The appropriate discount rate and tax rate to use for this analyis is 12 percent and 21 percent, respectively. Calculate the NPV (net present value) of this Potato Pet project.
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Expert Solution
Assuming end of year cash flows:
Assuming cash flows occur in the middle of the year (mid year convention)
jeff jeffy answered 1 year agoRelated Solutions
Pappy's Potato has come up with a new product, the Potato Pet that they are considering...
Pappy's Potato has come up with a new product, the Potato Pet
that they are considering launching. The company has determined
they will need a fixed asset investment at the beginning of the
project of $260,000. This asset will last for four years which is
the life of the project. Also, they will need to have more net
working capital (NWC) of which they have estmated an amount of
$16,500 for this purpose. The NWC will be recovered when the...
a. Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried...
a. Pappy’s Potato has come up with a new product, the Potato Pet
(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
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...
a. Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried...
a. Pappy’s Potato has come up with a new product, the Potato Pet
(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
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...
a. Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried...
a. Pappy’s Potato has come up with a new product, the Potato Pet
(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
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...
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...
Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried to...
Pappy’s Potato has come up with a new product, the Potato Pet
(they are freeze-dried to last longer). Pappy’s paid $138,000 for a
marketing survey to determine the viability of the product. It is
felt that Potato Pet will generate sales of $593,000 per year. The
fixed costs associated with this will be $197,000 per year, and
variable costs will amount to 19 percent of sales. The equipment
necessary for production of the Potato Pet will cost $656,000 and
will...
Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried to...
Pappy’s Potato has come up with a new product, the Potato Pet
(they are freeze-dried to last longer). Pappy’s paid $195,000 for a
marketing survey to determine the viability of the product. It is
felt that Potato Pet will generate sales of $910,000 per year. The
fixed costs associated with this will be $234,000 per year, and
variable costs will amount to 22 percent of sales. The equipment
necessary for production of the Potato Pet will cost $1,000,000 and
will...
Pappy’s Potato has come up with a new product, the Potato Premium Snack. Pappy’s paid $6,000...
Pappy’s Potato has come up with a new product, the Potato
Premium Snack. Pappy’s paid $6,000 for a marketing study to
determine the viability of the product. It is planned that the
company will produce 20,000 pieces of the Potato Premium Snack in
year 1 and this will increase by 50% in year 2 and remain constant
for years 3 and 4. The introductory sale price of one Potato
Premium Snack will be $2, it is felt that the price...
The company has just come up with a new highly profitable product. As a result it...
The company has just come up with a new highly profitable
product. As a result it plans to retain all earnings for the next 3
years (i.e. b=1) and invest them at a return (R) of 100% per year.
After three years the company will go back to its old policy of
retaining 60 percent of its earnings and investing them at 20
percent.
What will be the new price of the stock?
The new PE ratio
The new premium...
Use the following information to answer the next 3 questions. Pappy’s Potato has come up with...
Use the following information to answer the next 3
questions.
Pappy’s Potato has come up with a new product, the Potato Pet
(they are freeze-dried to last longer). It is expected that Potato
Pet will generate sales of $575,000 per year. The fixed costs
associated with this will be $179,000 per year, and variable costs
will amount to 20 percent of sales. The equipment necessary for
production of the Potato Pet will cost $920,000 and will be
depreciated to zero...
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