Question
A firm is determining whether to invest in a new project designed to make state-of-the-art widgets. The firm has created a tentative sales forecast and
A firm is determining whether to invest in a new project designed to make state-of-the-art widgets. The firm has created a tentative sales forecast and investment schedule detailed below. Based on that information complete the income and incremental cash flows tables. (20 points)
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| Year 0 | Year 1 | Year 2 | Year 3 |
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| Sales (units) |
| 10,000 | 15,000 | 20,000 |
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| Selling Price (per unit) |
| 20 | 30 | 40 |
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| Costs (per unit) |
| 15 | 20 | 25 |
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| Investments: (in 000s) | Year 0 | Year 1 | Year 2 | Year 3 | |
| 1 | Widget Machine | -300 |
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| 50 |
| 2 | Accumulated Depreciation |
| 50 | 150 | 300 |
| 3 | Adjusted Basis of Machine After Depreciation | 250 | 150 | 0 | |
| 4 | Warehouse Opportunity Cost | -100 |
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| 100 |
| 5 | Net Working Capital | 30 | 30 | 37.5 | 0 |
| Income: | Year 0 | Year 1 | Year 2 | Year 3 |
| Sales Revenue |
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| Operating Costs |
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| Depreciation |
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| Income Before Taxes |
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| Tax (34%) |
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| Net Income |
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| Incremental Cash Flows: |
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| Sales Revenue |
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| Operating Costs |
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| Taxes |
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| Cash Flow From Operations |
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| Total Cash Flow of Investments |
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| Total Cash Flow of Project |
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Last Rights Liquidating A Company
Authors: Ben Branch, Hugh Ra, Robin Russell
1st Edition
0195306988, 978-0195306989
