Using the simplified straight-line method down to zero

Assignment Help Financial Management

Reference no: EM132059284

Cash Flow Estimation:

Example 1:

You are considering expanding your product line. You feel you can sell 100,000 of these products per year for 4 years (after which time this project is expected to shut down). The product will sell for $6 each, with variable costs of $3 for each one produced, while annual fixed costs associated with production will be $90,000. In addition, there will be a $200,000 initial expenditure associated with the purchase of new production equipment. It assumed that this initial expenditure will be depreciated using the simplified straight-line method down to zero over 4 years. This project will also require a one-time initial investment of $30,000 in net working capital associated with inventory. Finally, assume that the firm’s marginal tax rate is 34 percent.

Example 2:

Firm ABC is considering to invest in a project to reduce costs by $70,000 annually. The equipment costs $200,000, had a 4-year life (will be depreciated as a 3-year MACRS asset), requires no additional investment in net working capital, and has a salvage value of $50,000. The firm’s tax rate is 39% and the required return on investments in this risk class is 10%. What is the NPV and IRR of this project? (The MACRS’s first three years’ depreciation rates in order are: 33.33%, 44.44% and 14.82%.)

Please provide all work for these problems, not just final solution so they can be modeled for similar problems,

Reference no: EM132059284

Questions Cloud

Steps of the writing process in composing written exercises : Competency: Identify and illustrate steps of the writing process in composing written exercises. Instructions: Compose a single body descriptive paragraph.

Possible equation for the corresponding function : If dy/dx= 7y , what is a possible equation for the corresponding function?

How fast the radius is changing when the circumference : How fast the radius is changing when the circumference is 5 cm

Payment per period : If the principle P is the total amount of money invested, briefly explain why R=P/m. Hint: P is the total amount and m is number of compoundings.

Using the simplified straight-line method down to zero : It assumed that this initial expenditure will be depreciated using the simplified straight-line method down to zero over 4 years .

Dsitance between the bicyclist and the balloon : How fast is the dsitance between the bicyclist and the balloon increasing 2 seconds later? I have tried various ways to answer this but cannot figure it out.

How should nha resolve the conflict with vp of operations : How should the NHA resolve the conflict with the VP of operations? Provide adequate details, and incorporate in your response the leadership style you suggest.

Edges of a cube shrink at rate : Edges of a cube shrink at rate of 2 cm/sec.

Cylindrical tank standing upright : A cylindrical tank standing upright (with one circular base on the ground) has a radius of 19 cm for the base.

User Account

All Pages