What is the after-tax salvage value at the end of project

Assignment Help Financial Management

Reference no: EM132050485

A firm is deciding on a new project. Use the following information for the project evaluation and analysis:

- The initial costs are $900,000 for fixed assets. The fixed assets will be depreciated straight line to a zero book value over the 3-year life of the project. The fixed assets have an estimated salvage value of $60,000 at the end of the project.

- The project also requires an additional $200,000 for net working capital. All of the net working capital will be recouped at the end of the 3 years.

- The project is expected to generate sales of $2,000,000 (2,000 units at a sales price of $1,000/unit), incur total costs of $1,500,000 per year (comprised of variable cost of $500 per unit and fixed costs of $500,000).

- The firm’s marginal tax rate is 40 percent.

- The company has 50,000 shares of common stock outstanding at a market price of $25 a share. The stocks have a beta of 1.5. The risk free rate is 1%, and the market risk premium is 10%.

- There are 1,000 bonds outstanding which mature in 13 years, have a face value per bond of $1,000, and are currently quoted at $1,250 each. The bonds have a coupon rate of 10 percent.

- The target capital structure is 50% debt and 50% equity.

a) What is the Operating Cash Flow for each year of the project?

b) What is the after-tax salvage value at the end of this project?

Reference no: EM132050485

Questions Cloud

What amount of deferred property tax revenues be reported : The following information relates to the first three questions in the list that follows. What amount of deferred property tax revenues should be reported

What is the formula used to find percent change in sales : What is the formula used to find percent change in sales? For example, Sales 2013 was $28,106, sales in 2014 decreased to $27,441

File and maintain accurate financial records : What are the reports that can be used for financial planning in an organisation? Why should organisations collect, file and maintain accurate financial records?

Write an inter-office memorandum : Advice on how to seek online education and/or be successful in an online education program in the field of professional communications

What is the after-tax salvage value at the end of project : What is the Operating Cash Flow for each year of the project? What is the after-tax salvage value at the end of this project?

Determine the carrying amount of the bonds as of december : Problem - Entries for Bonds Payable and Installment Note Transactions. Determine the carrying amount of the bonds as of December 31, 2015

How much was the ending value of investment : Compute for the HPR and HPY. How much was due for the dividend income? How much was the ending value of investment?

What is the current ratio : If inventory is $1,200, what is the current ratio?

What was the rate of return earned on the bond : What was the rate of return earned on the bond during the year you had it?

User Account

All Pages