Homework Help is Here – Start Your Trial Now!
Business
Accounting
Bailey Sheppard Corp. ("BSC") manufactures musical equipment and is evaluating the economics of expanding its manufacturing facility to enable it to take on a new business customer contract for the next 4 years. Last year, the company paid Target Research LLC $35,000 to do a marketing research study for its product lines. The current expansion scenario would have total construction costs of $1.3 million and it would take about 50 days to complete (i.e., essentially up-front). The Company would also put in $250 thousand of new machinery. Inventory (raw materials, work-in-process, finished goods) investment needed for the expansion would be $65 thousand. Annual depreciation associated with the expansion would be $150 thousand per year for the next four years, but the company has decided for income tax purposes to expense 100% of the cost of the long-term assets in Year 0. The company expects to borrow 100% of the upfront costs and thereby incur $646 thousand in total interest expense over the life of the project. Incremental sales for this project are estimated to be $1.2 million for Year 1; $1.9 million for Year 2: $2.1 million for Year 3; and $1.2 million for Year 4. Cost of goods sold is estimated to be approximately 50% of total sales, and additional fixed costs are estimated to be $100 thousand per year. At the end of the project's estimated life in Year 4, the company estimates it will be able to sell excess capital assets for $125,000 and the expected book value for these items would be $0 (zero). Also at the end of the project. $40,000 of remaining inventory could be liquidated at cost. The weighted average cost of capital is 16%, its assumed marginal income tax rate is 25%, and its capital gains tax rate is 25%. What is the Total Annual Cash Flow for Year 2? $648,500 $377,500 $637,500 $605,000

Bailey Sheppard Corp. ("BSC") manufactures musical equipment and is evaluating the economics of expanding its manufacturing facility to enable it to take on a new business customer contract for the next 4 years. Last year, the company paid Target Research LLC $35,000 to do a marketing research study for its product lines. The current expansion scenario would have total construction costs of $1.3 million and it would take about 50 days to complete (i.e., essentially up-front). The Company would also put in $250 thousand of new machinery. Inventory (raw materials, work-in-process, finished goods) investment needed for the expansion would be $65 thousand. Annual depreciation associated with the expansion would be $150 thousand per year for the next four years, but the company has decided for income tax purposes to expense 100% of the cost of the long-term assets in Year 0. The company expects to borrow 100% of the upfront costs and thereby incur $646 thousand in total interest expense over the life of the project. Incremental sales for this project are estimated to be $1.2 million for Year 1; $1.9 million for Year 2: $2.1 million for Year 3; and $1.2 million for Year 4. Cost of goods sold is estimated to be approximately 50% of total sales, and additional fixed costs are estimated to be $100 thousand per year. At the end of the project's estimated life in Year 4, the company estimates it will be able to sell excess capital assets for $125,000 and the expected book value for these items would be $0 (zero). Also at the end of the project. $40,000 of remaining inventory could be liquidated at cost. The weighted average cost of capital is 16%, its assumed marginal income tax rate is 25%, and its capital gains tax rate is 25%. What is the Total Annual Cash Flow for Year 2? $648,500 $377,500 $637,500 $605,000

Financial Management: Theory & Practice
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 1P: Talbot Industries is considering launching a new product. The new manufacturing equipment will cost...
See similar textbooks
icon
Related questions
Question
Bailey Sheppard Corp. ("BSC") manufactures musical equipment and is evaluating the economics of expanding its manufacturing facility to enable it to take on a new business customer contract for the next 4 years. Last year, the company paid Target Research LLC $35,000 to do a marketing research study for its product lines. The current expansion scenario would have total construction costs of $1.3 million and it would take about 50 days to complete (i.e., essentially up-front). The Company would also put in $250 thousand of new machinery. Inventory (raw materials, work-in-process, finished goods) investment needed for the expansion would be $65 thousand. Annual depreciation associated with the expansion would be $150 thousand per year for the next four years, but the company has decided for income tax purposes to expense 100% of the cost of the long-term assets in Year 0. The company expects to borrow 100% of the upfront costs and thereby incur $646 thousand in total interest expense over the life of the project. Incremental sales for this project are estimated to be $1.2 million for Year 1: $1.9 million for Year 2: $2.1 million for Year 3; and $1.2 million for Year 4. Cost of goods sold is estimated to be approximately 50% of total sales, and additional fixed costs are estimated to be $100 thousand per year. At the end of the project's estimated life in Year 4, the company estimates it will be able to sell excess capital assets for $125,000 and the expected book value for these items would be $0 (zero). Also at the end of the project, $40,000 of remaining inventory could be liquidated at cost. The weighted average cost of capital is 16%, its assumed marginal income tax rate is 25%, and its capital gains tax rate is 25%. What is the Total Annual Cash Flow for Year 2? $648,500 $377,500 $637,500 $605,000
Transcribed Image Text:Bailey Sheppard Corp. ("BSC") manufactures musical equipment and is evaluating the economics of expanding its manufacturing facility to enable it to take on a new business customer contract for the next 4 years. Last year, the company paid Target Research LLC $35,000 to do a marketing research study for its product lines. The current expansion scenario would have total construction costs of $1.3 million and it would take about 50 days to complete (i.e., essentially up-front). The Company would also put in $250 thousand of new machinery. Inventory (raw materials, work-in-process, finished goods) investment needed for the expansion would be $65 thousand. Annual depreciation associated with the expansion would be $150 thousand per year for the next four years, but the company has decided for income tax purposes to expense 100% of the cost of the long-term assets in Year 0. The company expects to borrow 100% of the upfront costs and thereby incur $646 thousand in total interest expense over the life of the project. Incremental sales for this project are estimated to be $1.2 million for Year 1: $1.9 million for Year 2: $2.1 million for Year 3; and $1.2 million for Year 4. Cost of goods sold is estimated to be approximately 50% of total sales, and additional fixed costs are estimated to be $100 thousand per year. At the end of the project's estimated life in Year 4, the company estimates it will be able to sell excess capital assets for $125,000 and the expected book value for these items would be $0 (zero). Also at the end of the project, $40,000 of remaining inventory could be liquidated at cost. The weighted average cost of capital is 16%, its assumed marginal income tax rate is 25%, and its capital gains tax rate is 25%. What is the Total Annual Cash Flow for Year 2? $648,500 $377,500 $637,500 $605,000
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Relevant cost analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Corporate Fin Focused Approach
Corporate Fin Focused Approach
Finance
ISBN:
9781285660516
Author:
EHRHARDT
Publisher:
Cengage
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Excel Applications for Accounting Principles
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS