Should cold stone pursue this project

Assignment Help Financial Management

Reference no: EM131451974

Suppose Cold Stone is planning to sell 50,000 mini ice cream cakes per year ($4 per each), starting from next year. It costs $2.5 to make one mini cake. Mini ice cream cakes are expected to generate profits for 3 years. Required rate of return on this project is 20%. Fixed costs for the project, including such things rents on the production facility, will run $12,000 per year. Further, Cold Stone needs to invests a total of $90,000 in manufacturing equipment today. Assume that this $90,000 will be 100% depreciated over the 3-year life of the project. Furthermore, the cost of removing the equipment will roughly equal its actual value in 3 years, so it will be essentially worthless on a market value basis as well. Finally, the project will require an initial $20,000 investment in net working capital, and the tax rate is 34%.

Question: should Cold Stone pursue this project?

Reference no: EM131451974

Questions Cloud

How large an equal annual end of year deposit : How large an equal annual end of year deposit must be made into an account earning a? return? of?? 13% in order to buy the? villa? upon?? retirement?

What is the net present value of the project : What is the net present value (NPV) of the project if the company’s cost of capital is 9.36 percent?

Using net present value when evaluating projects : Green Landscaping, Inc. is using net present value (NPV) when evaluating projects. Green Landscaping’s cost of capital is 9.66 percent. What is NPV of project

How much money must claude invest each year : Assuming an interest rate of 9%, how much money must Claude invest each year to provide for his retirement and his son's education?

Should cold stone pursue this project : Suppose Cold Stone is planning to sell 50,000 mini ice cream cakes per year ($4 per each), starting from next year. should Cold Stone pursue this project?

Dow jones industrial average is computed : The Dow Jones Industrial Average (DJIA) is computed by:

Discussed focusing on project risk characteristics : PMBOK, which is abbreviated as Project Management Body of Knowledge, is a common knowledge body/organization that deals with Project Management.

Smallest risk premium : For the period 1926-2014, which one of the following had the smallest risk premium?

Calculating the project free cash flows : Should interest paid for bond be part of the expenses in calculating the project's free cash flows and should be discounted at the after-tax cost of debt?

User Account

All Pages