Determine if this business venture should be undertaken

Assignment Help Financial Accounting

Reference no: EM13755646

A compant is considering investing $350,000 in surface land rights and $600,000 in a steel warehouse building with both costs incurred at time zero. Manufacturing equipment costing $400,000 would be installed at time zero to generate carwash units to be delivered across the country. Spare parts and product inventory are estimated at $500,000 also at time zero. Depreciate the building starting in year 1 by the straight line method over 39 years assuming depreciation using 5-year MACRS rates starting in year 1, while the land and working capital expenditures will be written off with all other remaining book values against the sale of the business at the end of year 5. Product sales in each of years 1-5 are estimated to be $4,500,000 per year with cost of goods sold estimated at $2,500,000 past year. Sales and operating expenses are forecasted to remain uniform over the project life. Your company would hope to sell the business at the end of year 5 for $15,000,000 net of all closing costs. The company uses an after-tax minimum rate of return of 15%. The effective state and federal income tax rate is 40% and other income is thought to exist against which to use all deductions.

1. Use NPV analysis to determine if this business venture should be undertaken,

2. When does the project achieve payback?

3. Based on car wash equipment sale of 2 units per week for 50 weeks per year, what price per complete car wash unit would allow the business to generate an after-tax escalated dollar return of 15% on teh invested capital?

4. How much more could be spent today (time zero) on 5 year MACRS depreciable equipment and still earn a 15% after-tax return? Use the 5-year business model for this calculation.

Reference no: EM13755646

Questions Cloud

Differences between the models for law systems : What are some of the differences between the models for law systems throughout the world? What are some of the benefits of each? What are some of the disadvantages of each?

Determining whether materials are direct or indirect : What are the criteria for determining whether materials are direct or indirect?

Difference between procedural rules and substantive rules : What is the difference between procedural rules and substantive rules? Which are more important for the average person in society to know? Why?

Describes the purpose of a budget : Question 1. What best describes the purpose of a budget?

Determine if this business venture should be undertaken : A compant is considering investing $350,000 in surface land rights and $600,000 in a steel warehouse building with both costs incurred at time zero. Manufacturing equipment costing $400,000 would be installed at time zero to generate carwash units to..

Having trouble setting up journal entries : Having trouble setting up journal entries, I know accounts recievable would be increasing and sales discounts would be be credited? Would much appreciate some help.

Presentation about a place to which you have traveled : You will use Microsoft PowerPoint to create a presentation about a place to which you have traveled or would like to travel

Advantages and disadvantages-preferred stock-bonds : Discuss the advantages and disadvantages of issuing preferred stock versus bonds.

Consider benefits and challenges linked with project team : Consider the benefits and challenges linked with project teams as shown in Exhibit 1.8 of the text. Assess the team contributions and determine which you think provides the biggest benefit.

User Account

All Pages