Considering investing in toaster ovens

Assignment Help Financial Management

Reference no: EM131047667

Steve’s Sub Stop (Steve’s) is considering investing in toaster ovens for each of its 120 stores located in the southwestern United States. The high-capacity conveyor toaster ovens, manufactured by Lincoln, will require an initial investment of $15,000 per store plus $500 in installation costs, for a total investment of $1,860,000. The new capital (including the costs for installation) will be depreciated over five years using straight-line depreciation toward a zero salvage value. Steve’s will also incur additional maintenance expenses totaling $120,000 per year to maintain the ovens. At present, firm revenues for the 120 stores total $9 million, and the company estimates that adding the toaster feature will increase revenues by 10%.

If Steve’s faces a 30% tax rate, what expected project FCFs for each of the next five years will result from the investment in toaster ovens?

If Steve’s uses a 9% discount rate to analyze its investments in its stores, what is the project’s NPV? Should the project be accepted?

Reference no: EM131047667

Questions Cloud

What is the after-tax cash flow from the sale of this asset : Consider an asset that costs $730,000 and is depreciated straight-line to zero over its eight- year tax life. The asset is to be used in a five-year project. If the relevant income tax rate is 40 percent, and the capital gains rate is 20 percent, wha..

Using equity to finance the better of the two alternatives : Project WACC Using Corporate Financing Pearson Electronics manufactures printed circuit boards used in a wide variety of applications ranging from automobiles to washing machines. In fall 2014, it considered whether to invest in two major projects. H..

Governing board in support of developing community coalition : What arguments would you prepare to address the governing board in support of developing a community coalition? What arguments would you prepare to address the governing board to support continuing to assist some community groups with health goals in..

What is the firms target debt-to-total capital ratio : You have been asked by an investor to value a restaurant. Last year, the restaurant earned pretax operating income of $300,000. Income has grown 4% annually during the last 5 years, and it is expected to continue growing at that rate into the foresee..

Considering investing in toaster ovens : Steve’s Sub Stop (Steve’s) is considering investing in toaster ovens for each of its 120 stores located in the southwestern United States. The high-capacity conveyor toaster ovens, manufactured by Lincoln, will require an initial investment of $15,00..

Dividends will resume the historical growth : Killnum Corporation announces that the dividend for next period will be $5.00 per share rather than the originally expected $2.50 per share. From then on, it is expected that dividends will resume the historical growth of 5% per year. What would you ..

Included as short term financing : Which of the following would NOT be included as a short -term financing?

Most apt to discourage purchasers from taking discount : Which one of the following is most apt to discourage purchasers from taking a discount?

Stock exchange-calculate debt and equity ratio : Binomial Tree Farm’s financing includes $6.8 million of bank loans. Its common equity is shown in Binomial’s Annual Report at $6.85 million. It has 500,000 shares of common stock outstanding, which trade on the Wichita Stock Exchange at $16.2 per sha..

User Account

All Pages