Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

a) What is the terminal cash flow for the project? b) What is the NPV the project if we end the project after 4 years?

image text in transcribed

a) What is the terminal cash flow for the project?

b) What is the NPV the project if we end the project after 4 years?

(please answer part a and part b)

ABC Corporation has hired you to evaluate a new FOUR year project for the firm. The project will require the purchase of a $788,300.00 work cell. Further, it will cost the firm $52,200.00 to get the work cell delivered and installed. The work cell will be straight-line depreciated to zero with a 20-year useful life. The project will require new employees to be trained at a cost of $51,500.00. The project will also use a piece of equipment the firm already owns. The equipment has been fully depreciated, but has a market value of $6,800.00. Finally, the firm will invest $11,500.00 in net working capital to ensure the project has sufficient resources to be successful. The project will generate annual sales of $904,000.00 with expenses estimated at 40.00% of sales. Net working capital will be held constant throughout the project. The tax rate is 38.00%. The work cell is estimated to have a market value of $468,000.00 at the end of the fourth year. The firm expects to reclaim 86.00% of the final NWC position. The cost of capital is 13.00%. ABC Corporation has hired you to evaluate a new FOUR year project for the firm. The project will require the purchase of a $788,300.00 work cell. Further, it will cost the firm $52,200.00 to get the work cell delivered and installed. The work cell will be straight-line depreciated to zero with a 20-year useful life. The project will require new employees to be trained at a cost of $51,500.00. The project will also use a piece of equipment the firm already owns. The equipment has been fully depreciated, but has a market value of $6,800.00. Finally, the firm will invest $11,500.00 in net working capital to ensure the project has sufficient resources to be successful. The project will generate annual sales of $904,000.00 with expenses estimated at 40.00% of sales. Net working capital will be held constant throughout the project. The tax rate is 38.00%. The work cell is estimated to have a market value of $468,000.00 at the end of the fourth year. The firm expects to reclaim 86.00% of the final NWC position. The cost of capital is 13.00%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Finance For Musicians

Authors: Bobby Borg

1st Edition

1538163306, 978-1538163306

More Books

Students also viewed these Finance questions

Question

Why would a business change its chart of accounts?

Answered: 1 week ago