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A company is considering an expansion of its product lineup. The company's CFO has the following information for this expansion project: The project has an
A company is considering an expansion of its product lineup. The company's CFO has the following information for this expansion project:
The project has an year life and requires a $ fixed asset investment. These assets will be depreciated straightline to zero over the project life. The estimated market value of the fixed assets at the end of the project is zero.
Six months ago, the company worked with a team of consultants to investigate the market for the new product. The company paid $ for the consultation.
The company plans to use a piece of land for the project. The company currently owns the land and expects to earn $ today by selling it
The project will generate annual sales and costs of $ and $
The project requires an initial investment of $ in net working capital, which the company expects to fully recover at the end of the project.
The company is subject to a corporate income tax rate. The required rate of return on the project is
Note : There is NO capital gain in this example. Accordingly, you do NOT need to know the capital gain tax rate.
Note : Be careful about the SIGNs of cash flows: negative or positive
A point Calculate the initial cash flow from the project.
Show your calculation steps briefly and clearly.
B point Calculate the operating cash flow from the project.
Show your calculation steps briefly and clearly.
C point Calculate the terminal cash flow from the project.
Show your calculation steps briefly and clearly.
D point Calculate the project's net present value NPV
You do NOT need to show your calculation steps in this subquestion.
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