Answered step by step
Verified Expert Solution
Question
1 Approved Answer
A company is considering launching a new product line featuring protein bars coated with deluxe chocolate flavors. The company has spent $ 7 5 ,
A company is considering launching a new product line featuring protein bars coated with deluxe chocolate flavors. The company has spent $ developing a new protein bar line as a part of the companys product diversification plan. It also spent another $ for market research on flavors to produce.Based on market research, the company expects in the first year to sell protein bars at a price of $ each, with an expected annual growth of in sales volume for years two through six.
The variable costs per unit are $ while the annual fixed costs are $ The company estimates that the net working capital will be of next years sales. Assume all net working capital will be recovered at the end of the project.
To expand production capacity for this new product line, the company is required to have an initial investment of $ in factory equipment. The equipment will be depreciated straightline for six years and is expected to have a $ salvage value. Based on the operations departments best estimate, the company can sell the factory equipment for $ at the end of year six.
The companys Tax Rate is and its cost of capital is However, the finance team suggests that the appropriate project discount rate should be higher as the company has no prior experience in making protein bars. The Market Risk Premium is and the riskfree rate is The companys Beta is while the project is deemed to be three times riskier.
If the acquired factory equipment is disposed at the end of year at $ what will be the aftertax cash flows related to this disposal rounded to the nearest dollar
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started