Question

RET Inc. has decided to manufacture and sell a new line of high-priced commercial stoves. Projected saes for the new line of stoves in annual units for the next 10 years are 10,000 a year. The sales price is $3,000 per stove, the variable costs are 2250 per stove, and fixed costs are $4,000,000 annually. The plant and equipment required for producing the new line of stoves costs 10,000,000 (today) and will be depreciated down to zero over 10 years using straight line depreciation.The plant and equipment is sold for 6,000,000 at the end of 10 years. Net working capital increases by 2,000,000 at the beginning of the project (year 0) and it is reduced back to its original level in the final year. The tax rate is 30 percent and the discounting rate of the project is 10%. What is the incremental cash flow of the project at year 0? What is the annual Net Income (NI) for the project in Year 1? What is the annual operating cashflow (OCF) for the project in year 1? What is the book value for the plant at equipment at the end of year 10? What is the after tax cash flow of the plant and equipment at disposal(salvage)? What is the incremental Cash flow at the end of year 10? What is the Net Present Value for this project? The project should be rejected or accepted?

Answer 1