Hubrey Home Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $3.2 million. Thefixed asset falls into Class 10 for tax purposes (CCA rate of 30% per year), and at the end of the three years can be sold for a salvagevalue equal to its UCC. The project is estimated to generate $2,580,000 in annual sales, with costs of $817,000. If the tax rate is 35%,what is the OCF for each year of this project? (Enter the answers in dollars. Do not round your intermediate calculations. Round thefinal answers to 2 decimal places. Omit $ sign in your response.)OCF1OCF2OCF 3

Operating Cash Flow (OCF), also known as cash flow from operations (CFO), is a financial metric that…

Answered: Hubrey Home Inc. is considering a new…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 17P

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Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
Hubrey Home Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $3.3 million. The fixed asset falls into Class 10 for tax purposes (CCA rate of 30% per year), and at the end of the three years can be sold for a salvage value equal to its UCC. The project is estimated to generate $2,590,000 in annual sales, with costs of $820,000. If the tax rate is 35%, what is the OCF for each year of this project? (Enter the answers in dollars. Do not round your intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.) OCF1 OCF2 OCF3 ta ta ta $ $ $
Hubrey Home Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $3.1 million. The fixed asset falls into Class 10 for tax purposes (CCA rate of 30 percent per year), and at the end of the three years can be sold for a salvage value equal to its UCC. The project is estimated to generate $2,570,000 in annual sales, with costs of $814,000. If the tax rate is 35 percent, what is the OCF for this project? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round your intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) $ S $ OCF1 OCF₂ OCF3
Hubrey Home Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $4 million. The fixed asset falls into Class 10 for tax purposes (CCA rate of 30% per year), and at the end of the three years can be sold for a salvage value equal to its UCC. The project is estimated to generate $2,660,000 in annual sales, with costs of $843,000. If the tax rate is 35%, what is the OCF for each year of this project? (Enter the answers in dollars. Do not round your intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.) OCF1 OCF2 0CF3 $ 1391050 $ 1538050 $ 1430950
Hubrey Home Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $3.2 million. The fixed asset falls into Class 10 for tax purposes (CCA rate of 30% per year), and at the end of the three years can be sold for a salvage value equal to its UCC. The project is estimated to generate $2,580,000 in annual sales, with costs of $817,000. If the tax rate is 35%, what is the OCF for each year one, two and three of this project? (Round to two decimal places)
Hubrey Home Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $4.6 million. The fixed asset falls into Class 10 for tax purposes (CCA rate of 30% per year), and at the end of the three years can be sold for a salvage value equal to its UCC. The project is estimated to generate $2,720,000 in annual sales, with costs of $861,000. If the tax rate is 35% what is the OCF for each year of this project? (Enter the answers in dollars. Do not round your intermediate calculations. Round th final answers to 2 decimal places. Omit $ sign in your response.) OCF1 OCF2 $ 892150 $ 2029450 3 OCF3 $ 2029450
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.46 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,000,000 in annual sales, with costs of $695,000. The project requires an initial investment in net working capital of $220,000, and the fixed asset will have a market value of $300,000 at the end of the project. If the tax rate is 35 percent, what is the project's Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be indicated by a minus sign.) Years Cash Flow Year 0 Year 1 Year 2 Year 3 %24 If the required return is 16 percent, what is the project's NPV? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) NPV
Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $1,811,367. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will be worthless. The project is estimated to generate $1,922,942 in annual sales, with costs of $1,726,634. If the tax rate is 0.27, what is the OCF for this project?
sfandairi Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.37 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,755,000 in annual sales, with costs of $665,000. The project requires an initial investment in net working capital of $340,000, and the fixed asset will have a market value of $315,000 at the end of the project. a. If the tax rate is 24 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.) b. If the required return is 9 percent, what is the project's 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.)
Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $946,892. The fixed asset will be depreciated straight-line to 65,578 over its 3-year tax life, after which time it will have a market value of $115,146. The project requires an initial investment in net working capital of $44,027. The project is estimated to generate $195,956 in annual sales, with costs of $114,189. The tax rate is 0.28 and the required return on the project is 0.13. What is the aftertax salvage value (SVNOT) in year 3? (Make sure you enter the number with the appropriate +/- sign)

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