User Account

All Pages

Calculate the annual net cash flows for the project

Assignment Help Financial Management
Reference no: EM131349108

International Foods Corporation (IFC) currently processes seafood with a unit it purchased several years ago. The unit, which originally cost $500,000, currently has a book value of $250,000. IFC is considering replacing the existing unit with a newer, more efficient one. The new unit will cost $700,000 and will require an additional $50,000 for delivery and installation. The new unit will also require IFC to increase it’s investment in initial net working capital by $40,000. The new unit will be depreciated on a straight-line basis over five years to a zero balance. IFC expects to sell the existing unit for $275,000. IFC’s marginal tax rate is 40%.

If IFC purchases the new unit, annual revenues are expected to increase by $100,000 (due to increased processing capacity), and annual operating costs (exclusive of depreciation) are expected to decrease by $20,000. Annual revenues and operating costs are expected to remain constant at this new level over the 5-year life of the project. IFC estimates that its net working capital investment, will increase by $10,000 per year over the life of the project. At the end of the project’s life (5 years), all working capital investments will be recovered. After five years, the new unit will be completely depreciated and is expected to be sold for $70,000. (Assume that the existing unit is being depreciated at a rate of $50,000 per year).

a. Calculate the project’s net investment.

b. Calculate the annual net cash flows for the project.

Reference no: EM131349108

Questions Cloud

What is the termination cash flow : ABC, Inc. is currently evaluating an independent capital project, involving a fixed asset with a purchase price of $680,000. ABC will have to bear shipping and installation cost of $5,000. WHAT ARE THE NET OPERATING CASH FLOWS FOR YEAR 1 THRU 5 OF TH..
What is the current spot exchange rate : The 90-day forward exchange rate is .01073033 dollars per yen. If this forward rate represents a per year premium of 2.5% from the current spot rate, what is the current spot exchange rate?
What is the required rate of return for the asset : Calculate the required rate of return for an asset that has a beta of 1.66, given a risk-free rate of 3.8 % and a market return of 8.5 %. b. If investors have become more risk-averse due to recent geopolitical events, and the market return rises to 1..
Portfolio model maximizes expected return : A second version of the Markowitz portfolio model maximizes expected return subject to a constraint that the variance of the portfolio must be less than or equal to some specified amount. Consider the Hauck Financial Service data. Click on the datafi..
Calculate the annual net cash flows for the project : International Foods Corporation (IFC) currently processes seafood with a unit it purchased several years ago. The unit, which originally cost $500,000, currently has a book value of $250,000. IFC is considering replacing the existing unit with a newe..
Effective annual interest rate : Bob invests $2000 at an effective annual interest rate of 15% for 10 years. interest is payable annually and reinvested at an effective annual rate j. at the end of 10 years, Bob's accumulated interest is W.
Calculate total contribution margin : Calculate total contribution margin in this problem.Note: I am looking for total contribution margin, not contribution margin per unit.You are given the following information:
Straight-line depreciation to zero over five-year life : Consider a three-year project with the following information: initial fixed asset investment = $880,000; straight-line depreciation to zero over the five-year life; zero salvage value; price = $34.45; variable costs = $22.75; fixed costs = $212,000; ..
Ignoring the effect of taxes-find the financial break-even : Consider a project with the following data: accounting break-even quantity = 10,300 units; cash break-even quantity = 9,500 units; life = six years; fixed costs = $190,000; variable costs = $88 per unit; required return = 10 percent. Ignoring the eff..

Reviews

Write a Review

Financial Management Questions & Answers

  Withdraws the entire amount and puts it in a mutual fund

At the end of each quarter, a 30-year-old woman puts $2000 in a retirement account that pays 6% interest compounded quarterly. When she reaches 55, she withdraws the entire amount and puts it in a mutual fund that pays 8.7% interest compounded monthl..

  Thereafter the firms dividends are expected to grow

Dartsch Corporation just paid a dividend of €1.45. Dartsch is expected to increase its dividend by 12 percent for the next five years, thereafter the firm’s dividends are expected to grow at a more modest rate of 4 percent indefinitely. If the requir..

  What is the present value of the life cycle costs

Boeing is making a new autonomous aircraft for the Air Force.  Development costs are $80 million in 2017, and $200 million in each of the years 2018 through 2031. Gen. Snow knows nothing about cash flow discounting, and so she treats $1 tomorrow the ..

  What is Project IRR-NPV and Payback Period

You will be evaluating three projects for Hasbro Toys. Hasbro's cost of capital or discount rate is 9%. The first project (A) will cost $30,000 initially. The project will then return cash flows of $7,000 for 5 years. What is Project A's NPV? What is..

  You are to select one business thatdoes not alreadyhave a

you are to select one business thatdoes not alreadyhave a websiteand develop an internet strategy for it. most large

  The annual earnings on the released funds

J-Mart, a nationwide department store chain, processes all its credit sales payments at its suburban Detroit headquarters. The firm is considering the implementation of a lockbox collection system with an Atlanta bank to process monthly payments from..

  Customers is delinquent on his accounts payable balance

One of your customers is delinquent on his accounts payable balance. You’ve mutually agreed to a repayment schedule of $510 per month. You will charge .91 percent per month interest on the overdue balance. Required: If the current balance is $14,730,..

  Retires to be able to withdraw the desired amount

When Dany retires, she wants to withdraw $15,000 every quarter from her savings for a period of 25 years. How much money must Dany have in the bank when she retires to be able to withdraw the desired amount?

  What is the projects net present value if required rate

A project is expected to create operating cash flows of $29,500 a year for three years. The initial cost of the fixed assets is $61,000. These assets will be worthless at the end of the project. An additional $4,500 of net working capital will be req..

  Calculate vintages return on equity

Vintage, Inc. has a total asset turnover of 1.33 and a net profit margin of 6.22 percent. The total assets to equity ratio for the firm is 2.2. Calculate Vintage’s return on equity.

  Create an income stream with their investments

Bob and Sue are investors. They are 5 years away from retirement and they are reviewing their portfolio. They have a conservative risk tolerance. They would like to create an income stream with their investments. Which two of the following investment..

  Accounting breakeven and economic breakeven

How is breakeven analysis used? What is the difference between accounting breakeven and economic breakeven?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd