The project must earn to equal the aftertax salvage value

Assignment Help Financial Management

Reference no: EM131350551

Allied Products, Inc., is considering a new product launch. The firm expects to have annual operating cash flow of $9.5 million for the next 8 years. Allied Products uses a discount rate of 14 percent for new product launches. The initial investment is $39.5 million. Assume that the project has no salvage value at the end of its economic life.

a. What is the NPV of the new product? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Round your answer to 2 decimal places. (e.g., 32.16))

NPV $

b. After the first year, the project can be dismantled and sold for $26.5 million. If the estimates of remaining cash flows are revised based on the first year’s experience, calculate the equivalent annual cash flows the project must earn to equal the aftertax salvage value. Assume the salvage value given is an aftertax value. (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Round your answer to 2 decimal places. (e.g., 32.16))

Annual cash flows $

Reference no: EM131350551

Questions Cloud

About the portfolio return : Year-to-date, Yum Brands had earned a 4.90 percent return. During the same time period, Raytheon earned 5.18 percent and Coca-Cola earned −0.65 percent. If you have a portfolio made up of 30 percent Yum Brands, 40 percent Raytheon, and 30 percent Coc..

Inflation rate-treasury inflation-protected : In year 1979 the inflation rate was 10%, in USA. How much would be the payment of bond at 5% such as TIP, Treasury inflation-protected, who has a face value of 100,000 and 5% semiannual payment?

Leasing company leases an equipment : A professional, leasing company leases an equipment for 5 years contract on monthly payment basis. The lease rate is 15% of the equipment value. And the equipment depreciation rate is 5% . What is the company IRR?

What if you use geometric average growth rate : Suppose Stark Ltd. just issued a dividend of $1.85 per share on its common stock. The company paid dividends of $1.50, $1.59, $1.66, and $1.77 per share in the last four years. If the stock currently sells for $45, what is your best estimate of the c..

The project must earn to equal the aftertax salvage value : Allied Products, Inc., is considering a new product launch. The firm expects to have annual operating cash flow of $9.5 million for the next 8 years. Allied Products uses a discount rate of 14 percent for new product launches. If the estimates of rem..

What will the account balance be after four ?years : If Bob and Judy combine their savings of ?$1,000 and ?$700?, ?respectively, and deposit this amount into an account that pays 2% annual? interest, compounded? monthly, what will the account balance be after 4 ?years?

About production costs associated with the new machine : Keener Clothiers Inc. is considering investing $2 million in an automatic sewing machine to produce a newly designed line of dresses. The dresses will be priced at $200, and management expects to sell 12,000 per year for six years. There is, however,..

What was the dollar amount of the accrued interest : Casey just purchased a $1,000 face value bond at an invoice price of $1,288.16. The bond has a coupon rate of 6.2 percent, semiannual interest payments, and the next interest payment occurs one month from today. Of the amount paid for the bond, what ..

Remain the five reported by the average household : Tim and Jill Taylor are retiring this year! Tim has worked for a utility company since his co-op job in college and has participated in all of the company’s retirement savings plans. Jill has worked since their kids were in high school. Are their big..

User Account

All Pages