Question

PLEASE ANSWER ALL QUESTIONS C-D

(Related to Checkpoint 121) Calculating project cash flows and NPV) You are considering expanding your product line that currently consists of skateboards to include gas powered skateboards, and you feel you can sell 8.000 of these per year for 10 years after which time this project is expected to shut down with solar powered skateboards taking over). The gas skateboards would sell for $110 each with variable costs of $35 for each one produced, and annual foxed costs associated with production would be $190,000. In addition, there would be a $1,100,000 initial venditure associated with the purchase of new produ i pment it is assumed that this initial expenditure will be depreciated using the simplified straight line method down to zero V w years. The project will also require a one-time in v est o f$40.000 in not working capital associated with Inventory, and this working capital investment will be recovered when the wedis shut down Finally, assume that the firm's marginal tax rates as 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 through 97 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 termination of the project)? d. What is the projects NPV given a required rate of return of 7 percent? a. The initial cash outlay associated with this project is $ 1140000 (Round to the nearest dollar) . The annual net cash flows associated with this project for years through 9 are 5 311000 (Round to the nearest dollar) c. The terminal cash flow in year 10 (that is, the tree cash flow in year 10 plus any additional cash flows associated with termination of the project) is 5337800 (Round to the nearest dollar) Enter your answer in the answer box and then click Check Answer

Answer 1

For Part (c) Answer is $351,000

H D Year 2 F Year 4 J Year 8 K Year 8 L Year 9 M Year 10 Year 1 Year 3 Year 5 Year 6 Year 7 Year 0 -1100000.0 880000.0 280000.0 110000.0 190000.0 300000.0 99000.0 880000.0 280000.0 110000.0 190000.0 300000.0 99000.0 880000.0 280000.0 110000.0 190000.0 300000.0 99000.0 880000.0 280000.0 110000.0 190000.0 300000.0 99000.0 880000.0 280000.0 110000.0 190000.0 300000.0 99000.0 880000.0 280000.0 110000.0 190000.0 300000.0 99000.0 880000.0 280000.0 110000.0 190000.0 300000.0 99000.0 880000.0 280000.0 110000.0 190000.0 300000.0 99000.0 880000.0 280000.0 110000.0 190000.0 300000.0 99000.0 880000.0 280000.0 110000.0 190000.0 300000.0 99000. 0 880000.0 280000.0 110000.0 190000.0 300000.0 9 9000.0 Particulars Equipment Purchased(A) Sales(1) Variable Cost(11) Depreciation(111=1100000/10) Fixed Cost(IV) Earnings before Taxes(V=1-11-II-IV) Taxes(@33% of V) Net Cash Flow from Operations(B=V Taxes+ III) Working Capital Change in Working Capital(C) Net Cash Flowl E=A+B+C) PV Factor (F) {Calculated @7%} Present Value (E*F) Net Present Value(SUM(B15:M15)) 311000.0 311000.0 311000.0 311000.0 311000. 0 3 11000.0 311000.0 311000.0 311000.0 311000.0 311000.0 40000.0 -40000.0 -1140000.00 40000.0 351000.00 311000.00 3 11000.00 311000.00 311000.00 311000.00 311000.00 311000.00 3 11000.00 311000.00 311000.00 1.00 0.934579 0.8734387 0.8162979 0.7628952 0.7129862 0.6663422 0.5820091 0.5439337 0.5083493 0.4750928 0.6227497 193675.17 - 1140000.00 1211091.43 290654.21 271639.44 253868.64 237260.41 221738.70 207232.43 181004.83 169163.39 158096.63 166757.57 16

For Part (d) Answer is $12,11,091.43