Question
In: Accounting
MSU Bakery is thinking of expanding its operations into a new line of pastries. The firm...
MSU Bakery is thinking of expanding its operations into a new line of pastries. The firm expects to sell $300,000 of the new product in the first year and $400,000 each year thereafter. Direct costs including labor and materials will be 60% of sales. Indirect incremental costs are estimated at $40,000 a year. The project will require several new ovens that will cost a total of $500,000 and be depreciated straight line over five years. The current plant is underutilized, so space is available that cannot be otherwise sold or rented. The firm's marginal tax rate is 35%, and its cost of capital is 12%. Assume revenue is collected immediately and inventory is bought and paid for every day, so no additional working capital is required. Prepare a statement showing the incremental cash flows for this project over an 6-year period. Structure as a new venture and calculate the NPV. Recommend either acceptance or rejection.
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Solutions
ekkarill92 answered 9 months agoRelated Solutions
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introduce a new line of products. Current plans call for the
expenditure of $100 million on four projects of equal size ($25
million each), but different returns. Project A is in blood
clotting proteins and has an expected return of 18 percent. Project
B relates to a hepatitis vaccine and carries a potential return of
14 percent. Project C, dealing with a cardiovascular compound, is
expected to earn 11.8...
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