User Account

All Pages

Calculate the new project free cash flows

Assignment Help Finance Basics
Reference no: EM132806936

SmartClean Ltd. is considering a new project that produces a new smarter cleaning robot. If accepted, this project can generate additional sales by 5,000 units starting in year 1. Each unit sells for $2,820. The company currently has an existing machine that has been requiring $15 million in operating expenses each year. However, the new project will require the company to incur incremental operating expenses to hire additional personnel, extra security, which are together equivalent to 60% of the incremental revenue every year.

To invest in this new project, the company will need to purchase a new machine, which costs $9.95 million. To get the new machine in running order, there would be a $25,000 shipping fee and a $5,000 installation charge. Additionally, the vendor will also charge a one-off service fee of $20,000, which will be charged at delivery. The new machine will be fully depreciated to a value of zero on a straight-line basis over the 10-year life of the project.

The new project will also require $1 million in additional working capital immediately. This working capital investment will be fully recovered in the last year of the project. The project will not require any other working capital investment during its 10-year life.
The new project will occupy space in the manufacturing plant. The company currently rents a plant at a rental cost of $100,000 per year. The management team believes that the current plant has sufficient capacity to accommodate the new project.

To fund the new project, the company will have to borrow $3 million at 6% annual interest rate from the bank and will pay additional annual interest payment of $180,000 starting from year 1. The company tax rate is 30%.

Required:

(a) Calculate the new project's free cash flows in year 0 and show your calculations.

(b) Calculate the new project's total free cash flows each year, from year 1 to year 9.

(c) Calculate the new project's total free cash flows in the terminal year and show your calculations.

(d) What is the payback period of this project (round to 2 decimal places)? Explain your answer.

Reference no: EM132806936

Questions Cloud

What was the purchase price : A bond with $80 annual coupons is purchased at a discount to yield i =10%. The write-up for the first year is $2.97. What was the purchase price
What is david new monthly payment : Five years ago, David borrowed $300,000 to purchase a house in Sandy Lake. At the time, the quoted rate on the mortgage was 8 percent
Prepare the journal entry for nathan admission : The partners share income and losses equally. Samuel Nathan will be admitted to the partnership by investment. Prepare the journal entry for Nathan admission
Describe the parental role in helping to create a loving : It is a truism that a loving, supportive home environment pays dividends in a child's development. The same is likely true in a school setting.
Calculate the new project free cash flows : (a) Calculate the new project's free cash flows in year 0 and show your calculations.
Employment opportunities to hospitality and tourism careers : How the MEEC industry improve different employment opportunities to hospitality and tourism careers and how these professionals generate positive
Why communication skills are required of forensic accountant : Audits and investigations are considered to be complex but as necessary skills for the Forensic Accountant" Explain the above statement.
How counselors become involve in school and school-community : List and explain the factors that play an important role if and how counselors become involved in school, school-community, and overall partnerships.
Determine the payback period for this investment : The company's required rate of return is 15 percent. Determine the payback period for this investment using the format shown in

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

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