Calculate the initial investment

Assignment Help Finance Basics

Reference no: EM13289336

Allied foods is evaluating a new product, fresh lemon juice. The required equipment would cost $480,000. Inventories would rise by $50,000, while accounts payable would go by $10,000. The machinery would be depreciated using the 3=year MACRS system. (Year 1=33%, Year 2=45%, Year 3=15% and Year 4=7%) The project is expected to operate 4 years, at which time it will be terminated. At the end of the projects life, the eqquipment is expected to have a salvage value of $55,00. Unit sales are excepted to total 200,000 cans per year. Similar products are fetching $2.00 per unit now, and expected inflation is 5% per year for the next four years. Operating cost less depreciation are excepted to be 60 percent of sales. Allied tax rate is 40% and its WACC is 10%. The lemon jucie project is an average risk project.

a. Calculate the initial investment, operating cash flows and terminal cash flows.

b. What is the NPV of this project?

c. What is the IRR of this project?

d. What is the Payback Period?

Reference no: EM13289336

Questions Cloud

At what price should key marketing corporation stock be : The required return is 10%. At what price should Key Marketing Corporation's stock be selling in the market?

What would happen to the money supply in the two countries : Under the gold standard, if Britain became more productive relative to the United States, what would happen to the money supply in the two countries?

Inventory turnover : In what ways can inventory turnover provide important insights about an organization's competitiveness and efficiency? What are several ways to manage dead inventory?

What arguments can the employees and contract workers : In January 2011, Mopak Corporation hired a security company to search all the vehicles in its parking lot for drugs and guns. The security company’s officers also used five drug detection dogs

Calculate the initial investment : Calculate the initial investment, operating cash flows and terminal cash flows.

What is the firms cost of retained earnings : What is the firms cost of retained earnings using the CAPM, DCF, and Bond-Yield-Plus-a-Risk-Premium approaches? What is your final eatimate of rs?

What is the npv : The company's cost of capital is 11%. What is the NPV (on a 6 yr extended basis) of the system that adds the most value? Answer choices: $17,298.30 or $22,634.77 or $31,211.52 or $38,523.43 or $46,143.21

Responsible for a horrible product failure : You are the product manager responsible for a horrible product failure, but in your wisdom, you are evaluating why the product failed. What factors would you consider in your evaluation? What actions could you have taken to prevent the failure? Does ..

What is the weighted average cost of capital : Its pretax cost of preferred equity is 7%, and its pretax cost of debt is 5%. If the corporate tax is 35%, what is the weighted average cost of capital?

User Account

All Pages