Calculate the cash flows, Financial Management

Assignment Help:

Your firm will produce widgets for the next 10 years (starting at t=1). Annual revenue from

selling widgets is $20,000. Production requires an initial outlay (at t=0) for machinery of $50,000, and

involves annual expenses for labor and raw materials of $3,000. In addition, the operation requires the firmto hold a certain amount of inventory. It is estimated that the level of inventory required is 10% of annualsales. You will need to build up this level of inventory before you start the project (i.e., at t=0). Themachinery will last 10 years and have zero salvage value. Any remaining assets of the firm will be

liquidated at the end of the ten years. Assume that the firm uses straight-line depreciation over the life ofthe equipment, pays 40% tax, and that all cash flows occur at the end of the year.

a) Calculate the after-tax operating cash flows for this firm

b) With an 8% WACC, what is the NPV of the project? Should you undertake it?

Q You are considering a new line of consumer products. You expect revenues of $14 million in

each of the next ten years, while expenses are half of revenues (all cash flows are assumed to be at year end).The project requires an initial investment of $20 million at the beginning of the first year, which may bedepreciated for tax purposes using a straight-line depreciation over five years. The project requires workingcapital of $8 million dollars at the beginning of the first year. $5 million of the working capital is recovered atthe end of year 5, and the rest is recovered at the end of year 10. A feasibility study of the new product, whichhas already been completed, cost $3 million. The project will utilize facilities that could be rented out for $1million per year in years 1 through 10. The company's tax rate is 35 percent.

a) Calculate the after-tax operating cash flows for this project.

b) With a 10% WACC, what is the NPV of the project? Should you undertake it?


Related Discussions:- Calculate the cash flows

Define cash management, Cash Management: - Cash management comprises mainta...

Cash Management: - Cash management comprises maintaining optimum cash balance and efficient collection and disbursement of cash. Methods or else Devices of Cash Management: - Th

Explain the concepts of planning the work, Explain the concepts of Planning...

Explain the concepts of Planning the work Determine scope and objective of the audit (to verify assets, to check adequacy of internal controls etc...). Ensuring appropr

What are financial markets, What are financial markets? Why do they exist? ...

What are financial markets? Why do they exist? Ans: Financial markets are in which financial securities are bought and sold.  They be present primarily to bring deficit economi

Explain about temporary or variable working capital, Q. Explain about Tempo...

Q. Explain about Temporary or Variable Working Capital ? Temporary or else Variable Working Capital - Any amount over and above the permanent level of working capital is called

Define the meaning of procurement, Define the meaning of procurement T...

Define the meaning of procurement Term procurement was used in a broad sense so as to include the whole gamut of raising funds externally.

Obtain the break even rate, Question 1 (a) These are merely the diffe...

Question 1 (a) These are merely the differences of the two prices. Consequently the mark to market losses are given by { Q 1 - Q 0 ,Q 2 - Q 0 ,Q 3 - Q 0

Objectives of averaging, The two main objectives are: ...

The two main objectives are: To get at a single value: Measures of central value, by considering the mass of data in one single

Call-put parity, Call-Put Parity P + S = C + E * [1/(1+i)] ^n     where...

Call-Put Parity P + S = C + E * [1/(1+i)] ^n     where:      P = the market price of the put    S = the market price of the stock    C = the market price of the call

What do you mean by treasury bills, What do you mean by treasury bills? ...

What do you mean by treasury bills? In between government debt instruments are Treasury bills. Such are money market securities, along with an original maturity of less than on

Bond and Stock valuation, 2. Suppose a 12% coupon bond sells at par today; ...

2. Suppose a 12% coupon bond sells at par today; and three years from today, the required rate on the same bond is 8%. What is the coupon rate on the bond today and what will it be

Write Your Message!

Captcha
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