The table below offers EBIT for a potential capital investment for Fake Company Zeta. (This same...
The table below offers EBIT for a potential capital investment for Fake Company Zeta. (This same project will be used for all of your FMC #3 work.) You should be able to determine a few things once you consider the following:
- The initial investment is $4,000.
- Depreciation is straight line over four years.
- The company's WACC is estimated at 15.0%.
- Company analysts estimate that a proper salvage value at the end of the project life of four years is about 30% of the initial investment.
- The company's tax rate is 30.0%.
| YEAR 1 | YEAR 2 | YEAR 3 | YEAR 4 | |
| EBIT | $500 | $650 | $700 | $1,100 |
What is this project's net incremental cash flow in Year 2?
Homework Answers
Annual depreciation = (4000-(4000*30%))/4
= $700
Project's net incremental cash flow in year 2
| EBIT | $650 |
| Less: taxes@30% | 195 |
| Net income | 455 |
| Add depreciation | 700 |
| Net incremental cash flows | 1155 |
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The table below offers EBIT for a potential capital investment
for Fake Company Zeta. (This same...
The table below offers EBIT for a potential capital investment for Fake Company Zeta. (This same ...
The table below offers EBIT for a potential capital investment for Fake Company Zeta. (This same project will be used for all of your FMC #3 work.) You should be able to determine a few things once you consider the following: The initial investment is $4,000. Depreciation is straight line over four years. The company's WACC is estimated at 15.0%. Company analysts estimate that a proper salvage value at the end of the project life of four years is about...
The table below offers EBIT for a potential capital investment for Fake Company Zeta. (This same...
The table below offers EBIT for a potential capital investment for Fake Company Zeta. (This same project will be used for all of your FMC #3 work.) You should be able to determine a few things once you consider the following: The initial investment is $20,000. Depreciation is straight line over four years. The company's WACC is estimated at 9.25%. Company analysts estimate that a proper salvage value at the end of the project life of four years is 30%...
The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are s...
The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Cute Camel Woodcraft Company: Last Tuesday, Cute Camel Woodcraft Company lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers that the internal rate of return (IRR) of Project Zeta is 13.8%, but he can't recall how...
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Galbraith Co. Is considering a four-year project that will require an initial investment of $15,000. The base-case cash flows for this project are projected to be $12,000 per year. The best-case cash flows are projected to be $20,000 per year, and the worst-case cash flows are projected to be - $1,000 per year. The company's analysts have estimated that there is a 50% probability that the project will generate the base-case cash flows. The analysts also think that there is...
Albert Co. is considering a four-year project that will require an initial investment of $5,000. The base-case cash flows for this project are projected to be $15,000 per year. The best-case cash flows are projected to be $22,000 per year, and the worst-case cash flows are projected to be -$1,500 per year. The company's analysts have estimated that there is a 50% probability that the project will generate the base-case cash flows. The analysts also think that there is a...
make capital budgeting decisions nterrelated and Consider the case of Fuzzy Button Clothing Company: Last Tuesday, Fuzzy Button Clothing Company lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers that the internal rate of return ((IRR) of Project Delta is 13.8%, but he can't recall how much Fuzzy Button originaly Invested in the project nor the project's net present value (NPV). However, he found a note that...
8. Abandonment options Shan Co. is considering a four-year project that will require an initial investment of $9,000. The base-case cash flows for this project are projected to be $14,000 per year. The best-case cash flows are projected to be $21,000 per year, and the worst-case cash flows are projected to be -$2,500 per year. The company's analysts have estimated that there is a 50% probability that the project will generate the base-case cash flows. The analysts also think that...
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