What are the free cash flows of the project

Assignment Help Financial Management
Reference no: EM131464390

Arnold Inc. is considering a proposal to manufacture? high-end protein bars used as food supplements by body builders. The project requires use of an existing warehouse, which the firm acquired three years ago for $ 3 million and which it currently rents out for $108,000. Rental rates are not expected to change going forward. In addition to using the warehouse, the project requires an upfront investment into machines and other equipment of $ 1.3 million. This investment can be fully depreciated straight-line over the next 10 years for tax purposes. However, Arnold Inc. expects to terminate the project at the end of eight years and to sell the machines and equipment for $419,000. Finally, the project requires an initial investment into net working capital equal to 10 percent of predicted first-year sales. Subsequently, net working capital is 10 percent of the predicted sales over the following year. Sales of protein bars are expected to be $ 4.5 million in the first year and to stay constant for eight years. Total manufacturing costs and operating expenses? (excluding depreciation) are 80 percent of sales, and profits are taxed at 30 percent.

a. What are the free cash flows of the project?

b. If the cost of capital is 15 % what is the NPV of the project?

Reference no: EM131464390

Questions Cloud

Arbitrage opportunity with options you are studying : You are in a situation that you suspect there is an arbitrage opportunity with options you are studying.
Calculate the price of european put option : Calculate the price of a European put option with a six-month expiration and a strike price of $30.
Certain stock pays no dividends and is priced by the market : A certain stock pays no dividends and is priced by the market at $19.
How much are you being offered for your company : You have successfully started and operated a company for the past 10 years. If you require an EAR of 9 percent, how much are you being offered for your company?
What are the free cash flows of the project : Arnold Inc. is considering a proposal to manufacture high-end protein bars used as food supplements by body builders. What are the free cash flows of project?
What would an investor with perfect foresight : What would an investor with perfect foresight of the above been willing to pay for KCP at the start of? 2006?
Net present value and internal rate or return as theories : How would justify the two concepts between Net Present Value and Internal Rate or Return as theories,
Original cost of certain asset-what is the capitalized worth : The original cost of a certain asset is $1,180. It has to be replaced (at this cost) every 4 years. What is the capitalized worth?
What was the firm operating cash flow or OCF : The December 31, 2015, balance sheet of Schism, Inc., showed long-term debt of $1,420,000. What was the firm's 2016 operating cash flow, or OCF?

Reviews

Write a Review

Financial Management Questions & Answers

  No dividends will be paid on the stock

Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next eleven years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $15.00 per share 12 yea..

  Result in initial aftertax cash savings

Scanlin, Inc., is considering a project that will result in initial aftertax cash savings of $1.71 million at the end of the first year, and these savings will grow at a rate of 1 percent per year indefinitely. What is the maximum initial cost the co..

  Securities market is tracked by a wide variety of indexes

The securities market is tracked by a wide variety of indexes, each of which focuses on a different group of stocks. The following table lists stock quotes from four of the most widely cited indexes: the Dow Jones Industrial Average (DJIA), the NASDA..

  Invest in a portfolio containing stock

You have $128,000 to invest in a portfolio containing Stock X and Stock Y. Your goal is to create a portfolio that has an expected return of 19.8 percent. Stock X has an expected return of 18 percent and a beta of 1.20, and Stock Y has an expected re..

  Calculate the non discounted payback period from project b

Calculate the non-discounted payback period from Project B.- Calculate the discounted payback period from Project B at a rate of interest of 4% per annum effective.

  Describe the concept of market efficiency

Describe the concept of market efficiency. In what sense is this concept an important part of the shareholder wealth maximization objective?

  Compute the price of the bonds based on semiannual analysis

You are called in as a financial analyst to appraise the bonds of Olsen’s Clothing Stores. The $1,000 par value bonds have a quoted annual interest rate of 11 percent, which is paid semiannually. Compute the price of the bonds based on semiannual ana..

  Present value of a perpetual stream of cash flows

What is the present value of a perpetual stream of cash flows that pays ?$6000 at the end of year one and the annual cash flows grow at a rate of 4?% per year? indefinitely, if the appropriate discount rate is 15?%? What if the appropriate discount r..

  What is the minimum expected annual return for stock

In order to fund her retirement, Michele requires a portfolio with an expected return of 0.11 per year over the next 30 years. She has decided to invest in Stocks 1, 2, and 3, with 25 percent in Stock 1, 50 percent in Stock 2, and 25 percent in Stock..

  Interest earned on the sinking fund in the third year

Copernicus borrows $L and repays the principal by making ten annual payments at the end of the year into a sinking fund which earns an annual effective rate of 8%. The interest earned on the sinking fund in the third year is $85.57. Determine L.

  What annual interest rate must they earn to reach their goal

Your parents will retire in 13 years. They currently have $300,000, and they think they will need $1 million at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds?

  How would you evaluate their performance

Imagine you have been tasked with evaluating a portfolio manager. How would you evaluate their performance? Share specific categories you would assess, what you would expect to see and any areas in which you allow leeway

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd