Reference no: EM132941392

Questions -

Q1. Determining relevant cash flows - Determining relevant cash flows Captain's Cereal is considering introducing a variation of its current breakfast cereal, Crunch Stuff. This new cereal will be similar to the old, with the exception that it will contain sugar-coated marshmallows shaped in the form of stars. The new cereal will be called Crunch Stuff n' Stars. It is estimated that the sales for the new cereal will be $25 million; however, 20 percent of those sales will draw from former Crunch Stuff customers who switched to Crunch Stuff n' Stars and who would not have switched if the new product had not been introduced. What is the relevant sales level to consider when deciding whether or not o introduce Crunch Stuff n' Stars?

Fruit Stones is considering introducing its current breakfast cereal, Jolt 'n Stones. This new cereal will be similar to the old with the exception that it will contain more sugar in the form of small pebbles. The new cereal will be called Stones 'n Stuff. It is estimated that the sales for the new cereal will be $100 million; however, 40 percent of those sales will be from former Fruity Stones customers who have switched to Stones 'n Stuff. These former customers will be lost regardless of whether the new product is offered because this is the amount of sales the firm expects to lose to a competitor product that is going to be deciding whether or not to introduce Stones 'n Stuff?

Q2. Calculating operating cash flows - Assume that a new project will annually generate revenues of $2,000,000 and cash expenses (including both fixed and variable costs) of $800,000, while increasing depreciation by $200,000 per year. In addition, the firm's tax rate is 34 percent. Calculate the operating cash flows for the new project.

Q3. Calculating operating cash flows - The Heritage Farm Implement Company is considering an investment that is expected to generate revenues of $3 million per year. The project will also involve annual cash expenses (including both fixed and variable costs) of $900,000, while increasing depreciation by $400,000 per year. If the firm's tax rate is 34%, what is the project's estimated net operating profit after taxes? What are the project's annual operating cash flows?