Question

Ouestion 3 Use the following prompt to answer the subsections: Aunt Sally's Sauces, Inc., is considering expansion into a new line of all-natural, chole sterol , Sodium-free, fat-free, low-calorie tomato sauces. Sally has paid $50,000 for a marketing study which indicates that the new product line would have sales of % of the next six years. Manufacturing plant and equipment would cost $500,000, and will be depreciated according to ACRS as a five-year asset. The fixed assets will have no market value at the end of six years. Annual fixed costs are projected at $80,000 and variable costs are projected at 60% of sales. Net working capital requirements are $75,000 for the six-year life of the project; the outlay for working capital will be recovered at the end of six years. Aunt Sally's tax rate is 34% and the firm requires a 16% return. 650,000 per year for each (3.1) Use the tax-shield approach to compute the operating cash flow for years 1 thr

Answer 1

1 Particulars 2 Capital Outlay 3 New Machine Year 0 Year $75,000.00 6 Operation Cash Flow $650,000.00 ($390,000.00) $80,000.00 ($75,000.00) $105,000.00 $35,700.00 $69,300.00 $144,300.00 $650,000.00 ($390,000.00 80,000.00 $110,000.00 $70,000.00 650,000.00 $390,000.00 S650,000.00 ($390,000.00) $650,000.00 ($390.000.00 $80,000.00 ($105,000.00) $75,000.00 $25,500.00 $49,500.00 $154,500.00 $650,000.00 ($390,000.00 8 Variable cost @ 60% 9 Fixed cost $105,000.00 $75,000.00 11 Profit before tax 12 Tax@ 34% 13 Profit after tax 14 Operation Cash Flow ($105,000.00 $75,000.00 $25,500.00 $49,500.00 S154,500.00 $154,500.00 $180,000.00 $156.200.00 $156,200.00 $116,082.05 S49,500.00 $154,500.00 $154,500.00 $118,800.00 $118,800.00 $193,800.00 ($575,000.00 $144,300.00 $154,500.00 16 Net Cash flow 17 PV factor @ 1 6% 18 PV of cash flow 19 NPV of Project 74 48 | ( $575,000.00) $124,396.55 S98,981.61 $2,892.35 $85,328.97 $73,559.46 $79,543.71 21 Solution-3.1 22 Particulars 23 Operation Cash Flow Year Year Year Year1Year 2 Year 3 Year 4 $144,300.00 $156.200.00 $154,500.00 $154,500.00 $118.800.00

Year 0 Year 6 1 Particulars 2 Capital Outlay 3 New Machine SUM(B4:E4) 6 Operation Cash Flow 8 Variable cost @ 60% :-6096 *C7 -60%*07 9 Fixed cost 15% SB$3 SUM(C7:C10) 34%"C11 C11-C12 C13-C10 -C14+C3+C4 22%"SBS3 SUM(D7:D10) 3496"D 1 1 D11-D12 D13-D10 21 %*SBS3 21%"SBS3 SUM(F7:F10) 3496"F11 -F11-F12 F13-F10 21 %"SBS3 SUM(G7:G10) 11 Profit before tax 12 Tax@ 34% 13 Profit after tax 14 Operation Cash Flow SUM(E7:E10) SUM(H7:H10) 3496"E11 E11-E12 E13-E10 #3496"G11 34% H11 G11-G12 G13-G10 H11-H12 H13-H10 D14+D3+D4 1/1.1642 D16 D17 E14+E3+E4 -F14+F3+F4 1/1.16 4 =F16"F17 -G14+G3+G4 1/1.16 5 -G16"G17 «H14+H3+H4 16 Net Cash flow 17 PV factor @ 1 6% PV of cash flow 19 NPV of Project ミ1/1.160 #816"B17 =SUM(B18:H18) 1/1.161 -C16 C17 1/1.16 3 =E16"E17 21 Solution-3.1 22 Particulars 23 Operation Cash Flow Year 1 Year 3 Year 4