Preliminary project estimates-project free cash flow

Assignment Help Financial Management

Reference no: EM131875446

Magnolia Acoustics, Inc. (MAI), projects unit sales for a new seven-octave voice emulation implant as follows:

Year Unit Sales

0 - 0

1 - 83,000

2 - 92,000

3 - 104,000

4 - 98,000

5 - 84,000

Production of the implants will require an investment of $1,500,000 in net working capital to start the project.

Additional net working capital investments each year (starting in year 1) equal to 15% of the projected sales increase for the following year. Decreases in sales will result in recovery of net working capital to equal 15% of the projected sales decrease for the following year.

All net working capital investments will be recovered after the final year of the project.

Total fixed costs are $2,400,000 per year, variable production costs are $190 per unit, and the units are priced at $345 each.

The equipment needed to begin production has an installed cost of $23,000,000. This equipment is considered industrial machinery and thus qualifies as seven-year MACRS property.

MACRS for 7 years Yr - %

1 - 14.29%

2- 24.49%

3- 17.49%

4- 12.49%

5- 8.93%

6 - 8.92%

7- 8.93%

8- 4.46%

In five years, this equipment will be sold for an estimated 20% of its acquisition cost.

MAI is in the 35% marginal tax bracket and has a required return on all its projects of 18%.

Based on these preliminary project estimates, what is the NPV of the project? What is the Project Free Cash Flow?

Reference no: EM131875446

Questions Cloud

Define the options and determine the best choice : Discuss these two options and determine the best choice. Ensure that all teammates concur with the decision and understand the rationale.

What are some characteristic symptoms of autism : What are some characteristic symptoms of autism? What is an example of a behavior that someone with autism may exhibit

Develop a bibliography on globalization and outsourcing : The purpose of this short research paper is to ensure proper understanding and application of APA style as required in all Ashford courses.

Identify whether the demand curve will shift rightward : Without drawing a graph, identify whether the demand curve will shift rightward or leftward: A decrease in the number of buyers.

Preliminary project estimates-project free cash flow : Based on these preliminary project estimates, what is the NPV of the project? What is the Project Free Cash Flow?

Explain the similarities and differences of the budgets : For this assignment, you must develop a 4-5-page memo that you will deliver to the board of directors of ICBI. You will describe what a financial reporting.

What expense should bramble company record : What expense should Bramble Company record as a result of the facts above for the year ended December 31, 2017

What is sprint nextel break-even number of accounts : Assume that 75% of the cost of revenue and 25% of the selling, What is Sprint Nextel's break-even number of accounts, using the data and assump- tions above

Assessing the validity of the mutually exclusive project : You have been hired in the finance department at a large, metropolitan for-profit hospital. Your duties are very important to the entire hospital in terms.

User Account

All Pages