Hi. I need an understanding of how to calculate a projects net investments and cash flows. The image is attached. Expansion Project Scenario - PopFizz Soda CompanyThe PopFizz Soda Company has decided to capitalize on the flavored water fad and plans toopen a new factory. To get the project underway, the company will rent space adjacent to itscurrent factory. The equipment required for the new factory will cost $600,000. Shipping andinstallation charges for the equipment are expected to total $50,000. This equipment will bedepreciated on a straight-line basis over its five-year economic life to an estimated salvagevalue of $0. In order to begin production of the flavored water, PopFizz Soda estimates that itwill have to add about $80,000 initially to its net working capital in the form of additionalinventories of plastic bottles, sugar, water, and packaging (less accounts payable to suppliers).During the first year of operations, PopFizz Soda expects its total revenues (from flavoredwater) to increase by $600,000 above the level that would have prevailed from just soda sales.These incremental revenues are expected to grow to $700,000 in year 2, $850,000 in year 3,decline to $700,000 in year 4, and decline again to $450,000 during the fifth and final year of theproject's life. The company's incremental operating costs associated with the new plant,including the rent of the space, are expected to total $250,000 during the first year and increaseat a rate of 5 percent per year over the five-year project life. Depreciation will be $130,000 peryear ($650,000 installed cost, assuming no salvage value, divided by five-year economic life).PopFizz Soda has a marginal tax rate of 25 percent. In addition, PopFizz Soda expects that itwill have to add about $65,000 per year to its net working capital in years 1, 2, and 3 andnothing in years 4 and 5. At the end of the project, the total accumulated net working capitalrequired by the project will be recovered.

When investing in a project we need to determine its financial viability. For this we often use…

Answered: Hi. I need an understanding of how to…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 18P

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Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $14.00 million fully installed and will be fully depreciated over a 16.00 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.71 million per year and increased operating costs of $775,814.00 per year. Caspian Sea Drinks' marginal tax rate is 20.00%. The incremental cash flows for produced by the RGM-7000 are _____.
Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $13.00 million fully installed and will be fully depreciated over a 16.00 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $3.09 million per year and increased operating costs of $680,871.00 per year. Caspian Sea Drinks' marginal tax rate is 33.00%. The incremental cash flows for produced by the RGM-7000 are Submit Answer format: Currency: Round to: 2 decimal places.
Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $13.00 million fully installed and will be fully depreciated over a 15 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.86 million per year and increased operating costs of $690,120.00 per year. Caspian Sea Drinks' marginal tax rate is 20.00%. The internal rate of return for the RGM-7000 is _____. Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))
Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $13.00 million fully installed and will be fully depreciated over a 20 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $3.89 million per year and increased operating costs of $548,726.00 per year. Caspian Sea Drinks' marginal tax rate is 32.00%. If Caspian Sea Drinks uses a 8.00% discount rate, then the net present value of the RGM-7000 is _____. (ROUND TO 4 DECIMAL PLACES)
Consider the following project for Hand Clapper, Inc. The company is considering a 4-year project to manufacture clap-command garage door openers. This project requires aninitial investment of $16.7 million that will be depreciated straight-line to zero over theproject’s life. An initial investment in net working capital of $1,070,000 is required tosupport spare parts inventory; this cost is fully recoverable whenever the project ends.The company believes it can generate $14.3 million in revenues with $5.8 million inoperating costs. The tax rate is 22 percent and the discount rate is 14 percent. Themarket value of the equipment over the life of the project is as follows: Year Market Value ($ millions)1 $ 14.702 11.703 9.204 1.95a. Assuming Hand Clapper operates this project for four years, what is the NPV?b. Compute the project NPV assuming the project is abandoned after only one year.c. Compute the project NPV assuming the project is abandoned after only two years.d. Compute the…
Consider the following project for Hand Clapper, Inc. The company is considering a 4-year project to manufacture clap-command garage door openers. This project requires an initial investment of $16.7 million that will be depreciated straight-line to zero over the project’s life. An initial investment in net working capital of $1,070,000 is required tosupport spare parts inventory; this cost is fully recoverable whenever the project ends. The company believes it can generate $14.3 million in revenues with $5.8 million in operating costs. The tax rate is 22 percent and the discount rate is 14 percent. Themarket value of the equipment over the life of the project is as follows:d. Compute the project NPV assuming the project is abandoned after only threeyears.Year: Market Value ($ millions)1: $ 14.702: $11.703: $9.204: $1.95
Calculating initial investment DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $127,000. The firm has a chance to sell its 3-year-old roaster for $34,900. The existing roaster originally cost $60,800 and was being depreciated using MACRS and a 7-year recovery period (see the table E). DuPree is subject to a 40% tax rate. a. What is the book value of the existing roaster? b. Calculate the after-tax proceeds of the sale of the existing roaster. c. Calculate the change in net working capital using the following figures: Data Table Anticipated Changes in Current Assets and Current Liabilities (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a -$19,000 + 50,600 + 39,200 + 70,200 Accruals spreadsheet.) Inventory Accounts payable Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes…
Consider the following project for Hand Clapper, Incorporated. The company is considering a 4-year project to manufacture clap-command garage door openers. This project requires an initial investment of $16 million that will be depreciated straight-line to zero over the project's life. An initial investment in net working capital of $1,000,000 is required to support spare parts inventory; this cost is fully recoverable whenever the project ends. The company believes it can generate $12.9 million in preţax revenues with $5.1 million in pretax operating costs. The tax rate is 25 percent and the discount rate is 13 percent. The market value of the equipment over the life of the project is as follows: Year 1 a. 234 2 Market Value (in millions) $14.00 11.00 8.50 1.85 Assuming Hand Clapper operates this project for four years, what is the NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)…
Seong Seng Coachbuilders is considering purchasing a new machine to replace an old one. Cost of new machine: Purchase price $85,000 Installation & Commissioning $10,000 The proposed new machine is to be depreciated using the straight line method over its four-year useful life with an estimated salvage value of $15,000. The proposed new machine is expected to increase sales and operating expenses and the amount are expected to be constant over the project’s 4 year life. Sales $65,000 Operating expenses $26,000 Seong Seng operating working capital is also expected to increase as follows: Inventory $12,000 Accounts receivable $8,000 Accruals $3,000 Accounts payable $6,000 The old, existing machine is also being depreciated using the straight line method over its 6 years useful life towards zero salvage. It was purchased…
Seong Seng coachbuilders is considering purchasing a new machine to replace an old one. Cost of new machine. Purchase price $85,000 Installation & commissioning $10,000 The proposed new machine is to be depreciated using the straight- line method over its four year useful life with an estimated salvage value of $15,000. The proposed new machine is expected to increase sales and operating expenses and the amount is expected to be constant over the project’s 4 year life. Sales $65,000 Operating expenses $26,000 Seong Seng operating working capital is also expected to increase as follows: Inventory $12,000 Account receivable $8,000 Accounts $3,000 Account payable $6,000 The old, existing machine is also being depreciated using the straight-line method over its 6years of useful life towards zero salvage. It was purchased 2 years…
Kivi Service Stations is considering expanding its operations to include the greater Dubuque area. Rather than build new service stations in the Dubuque area, management plans to acquire existing service stations and convert them into Kivi Outlets. Kivi is evaluating two similar acquisition opportunities. Information relating to each of these service stations is presented below: Estimated normal rate of return on net assets Joe's Garage 20% $950,000 Gas N' Go Fair value of net identifiable assets Actual average net income for past five years b. Compute an estimated fair value for any goodwill associated with Kivi purchasing Gas N' Go. Base your computation upon an assumption that Kivi's management expects excess earnings to continue for four years. $220,000 20% $980,000 $275,000
Consider the following project of Hand Clapper, Incorporated. The company is considering a four-year project to manufacture clap-command garage door openers. This project requires an initial investment of $12.2 million that will be depreciated straight-line to zero over the project's life. An initial investment in net working capital of $545,000 is required to support spare parts inventory; this cost is fully recoverable whenever the project ends. The company believes it can generate $10.1 million in pretax revenues with $3.5 million in total pretax operating costs. The tax rate is 22 percent and the discount rate is 10 percent. The market value of the equipment over the life of the project is as follows: Year 1 AWN. 2 3 4 Market Value (millions) $9.8 7.9 4.3 1.1 a. Assuming the company operates this project for four years, what is the NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.) b-1.…

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