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Relevant Cash flow scenario Assume you have just graduated from college with a degree in finance and you are trying to explain to your boss the importance of identifying and using the appropriate cash flows when you make financial decisions. He is considering investing in a project and he has identified the following cash flows and information that he considers relevant. Forecast net income for years 1 through 8 of $450,000. Initial Investment in equipment and facility of $2,200,000 Value of equipment and facility at project's termination $200,000. The equipment will be fully depreciated by the project's end. For simplicity assume equal amounts every year. The company's marginal tax rate is 15%. Your boss expects to allocate 20% of his time to the new project and he makes $250,000 per year. The company's required return on the project is 10%. Your boss has not included any additional funds for net working capital. Your boss is basing his forecasts on the results from a product test market that the firm paid $245,000 to have conducted.
Explain incremental cash flows to your boss and identify the main categories of the incremental cash flows? Identify the relevant cash flows in this project. Justify the answer. should you consider making adjustments for net working capital? what is the after-tax terminal value of the facility and equipment? Explain how the cash flows might differ if this were a replacement project?
Anne sold her home for $290,000 in 2015. Selling expenses were $17,400. She purchased it in 2009 for $200,000. During the period of ownership, Anne had done the following: Deducted $50,500 office-in-home expenses, which included $4,500 in depreciatio..
What is the future value of an annuity where $3,000 is deposited every 6 months for 8 years, and earns interest at 12 percent compounded semi-annually?
Which of the following is a source of long-term funds?
Breakeven Analysis: Paul Scott has a 2008 Cadillac that he wants to update with a GPS system so that he will have access to up-to-date road maps and directions. Aftermarket equipment can be fitted for a flat fee of $500, and the service provider requ..
A project has an initial cost of $41,100.00, expected net cash inflows of $9,500.00 per year for 8 years, and a cost of capital of 12.25%. What is the project's payback period?
Although not shown on Table 1, the Center uses (sells) $800,000 of drugs annually in its dialysis treatments, which cost the hospital (pharmacy) $400,000. The $400,000 profit on these drugs accrues to the pharmacy, which records $800,000 of revenues ..
What method is used for calculation of the accounting beta?
Three-month European put options with strike prices of $50, $55, and $60 cost $2, $4, and $7, respectively. What is the maximum gain when a butterfly spread is created from the put options? What is the maximum loss when a butterfly spread is created ..
A7X Corp. just paid a dividend of $1.40 per share. The dividends are expected to grow at 17 percent for the next eight years and then level off to a growth rate of 5 percent indefinitely. If the required return is 12 percent, what is the price of the..
Consider two firms A and B that are identical in all respects except capital structure. Firm A has $100 million in equity outstanding and $40 million in bonds outstanding. Firm B has $140 million in equity outstanding and $0 million in bonds outstand..
Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores . Fisk anticipates sales of 75,000 units per year, an ordering cost of $8 per order, and carrying costs of $1.20 per unit. Wh..
Wine and Roses, Inc. offers a 6.0 percent coupon bond with semi annual payments and a yield to maturity of 6.91 percent. The bonds mature in 12 years. What is the market price of a $1,000 face value bond? A bond that pays interest annually yields a r..
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