What are annual free cash flows associated

Assignment Help Financial Management

Reference no: EM132053248

(Calculating free cash flows) You are considering new elliptical trainers and you feel you can sell 4,000 of these per year for 5 years (after which time this project is expected to shut down when it is learned that being fit is unhealthy). The elliptical trainers would sell for $1,000 each and have a variable cost of $500 each. The annual fixed costs associated with production would be $1,200,000. In addition, there would be a $6,000,000 initial expenditure associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the simplified straight-line method down to zero over 5 years. This project will also require a? one-time initial investment of $1,200,000 in net working capital associated with inventory, and that working capital investment will be recovered when the project is shut down. Finally, assume that the firm's marginal tax rate is 32 percent.

a. What is the initial outlay associated with this project?

b. What are the annual free cash flows associated with this project for years 1 through 4?

c. What is the terminal cash flow in year 5 (that is, what is the free cash flow in year 5 plus any additional cash flows associated with the termination of the project)?

d. What is the project's NPV given a required rate of return of 11 percent?

Reference no: EM132053248

Questions Cloud

What is balance of current liabilities on firm balance sheet : What is the amount of total liabilities and equity that appears on the firm's balance sheet? What is balance of current liabilities on the firm's balance sheet

Analyze the augustus of primaporta statue : Analyze the Augustus of Primaporta statue. What specific symbols refer to Augustus' divine lineage (explain exactly how the symbols do this)?

Use to discount the project cash flows : What is the NPV of the restaurant if the required rate of return you use to discount the project cash flows is 11 percent?

Calculate the price of call and put option : Calculate the price of a call and put option with exercise price $10 and 2 periods on a stock whose initial price is $13.

What are annual free cash flows associated : What are the annual free cash flows associated with this project for years 1 through 4? What is the terminal cash flow in year 5.

Have you made leadership about changing the world : After watching the video, answer the following questions: Have you made leadership about changing the world? Explain. Did you ever experience a "lollipop".

Determine the total dollar cost of the trip to italy : Determine the total dollar cost of the trip to Italy. Determine the number of euros Fred will need to cover meals and miscellaneous expenditures.

What is the firm pretax cost of debt : The issue makes annual payments and has a coupon rate of 8.4 percent annually. What is the firm's pretax cost of debt?

Evaluate the impact of implementing triple aim goals : Write a 700- to 1,050-word paper that evaluates the impact of implementing Triple Aim goals nationally. Determine whether the three dimensions of Triple Aim.

User Account

All Pages