What is the initial cash outlay associated with this project

Assignment Help Financial Management

Reference no: EM13915435

You are considering expanding your product line that currently consists of skateboards to include gas-powered skateboards, and you feel you can sell 7,000 of these per year from 10 years ( after which time this project is expected to shut down with solar powered skateboards taking over). The gas skateboards would sell for $130 each with variable costs of $50 for each one produced, and annual fixed costs associated with production would be $200,000. In addition, there would be a $1,100,000 initial expenditure associated with the purchase of new production equipment.It is assumed that this initial expenditure will be depreciated using the simpligied straight-line method down to zero over 10 years. The project will also require a one-time initial investment of $60,000 in net working capital associated with inventory, and this working capital investment will be recovered when the project is shut down. Finally, assume that the firms marginal tax rate is 33 percent.

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

b. What are the annual net cash flows associated with this project for years 1-9?

c. What is the terminal cash flow in year 10 ( that is, what is the free cash flow in year 10 plus any additional cash flows associated with the termination of the project)?

d. What is the project NPV given a required rate of return of 12%?

Reference no: EM13915435

Questions Cloud

List and discuss the key characteristics of organizational : List and discuss the key characteristics of organizational buying that make it different from consumer buying.

Prepare the plant assets section of balance sheet : At December 31, 2014, Navaro Corporation reported the following plant assets. Record adjusting entries for depreciation for 2015. Prepare the plant assets section of Navaro’s balance sheet at December 31, 2015.

Combination fixed salary : From the employees' perspective, what level of monthly sales dollars must COMM achieve so that their monthly compensation under the combination fixed salary/commission model is equal to the current monthly fixed salary amount (currently $38,000

Describe the roles assumed by people in a buying center : Describe the roles assumed by people in a buying center and what useful questions should be raised to guide any analysis of the structure and behavior of a buying center.

What is the initial cash outlay associated with this project : You are considering expanding your product line that currently consists of skateboards to include gas-powered skateboards, and you feel you can sell 7,000 of these per year from 10 years ( after which time this project is expected to shut down with s..

Financial consulting business : Suzy Sunshine, age 31, is single and has one child that lives with her, Johnny, age 17. She opened a financial consulting business in January of 2014. She rented office space initially, but then purchased an office building for the business at 1234 N..

What roles do the various individuals play in the purchase : To date, the firm's marketing efforts have been directed to city purchasing departments and the various state EPAs to get on approved bidder's lists. Talks with city-employed personnel have indicated that the new system is very different from current..

State university : Adrian was awarded an academic scholarship to State University for the 2015-2016 academic year. He received $6,500 in August and $7,200 in December 2015.

When dixie corporation was organized in january : When Dixie Corporation was organized in January 2013, it immediately issued 3,000 shares of $50 par, 6 percent, cumulative preferred stock and 40,000 shares of $20 par common stock.

User Account

All Pages