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AAA Corp. currently has one product, high-priced lawn mowers. AAA Coro has decided to sell a new line of medium-priced lawn mowers. The building and
AAA Corp. currently has one product, high-priced lawn mowers. AAA Coro has decided to sell a new line of medium-priced lawn mowers. The building and machinery for producing this new line is estimated to cost $10.000.000 and it will be depreciated down to zero over 20 years using straight-line depreciation. Also, an investment today on working capital in the amount of $3,000,000 is needed. The working capital will be recovered at the end of the project. Sales for the new line of lawn mowers are estimated at $28 million a year. Annual variable costs are 80% of sales. The project is expected to last 5 years. In addition to the production variable costs, the fixed costs each year will be $4,000,000. The company has spent $1,000,000 in a marketing study that determined the company will lose $9 million in sales a year of its existing high-priced lawn mowers. The production variable cost of these sales is $7 million a year. It is expected that at the end of the project, the building and machinery can be sold for $8.000.000. The tax rate is 20 percent and the cost of capital is 10%. a. What is the initial outlay (10) for this project? The initial Outlay is $. Round your answer to the nearest doilar - no decinsie - and commas are required to separate thousands and millions. Use negative sign for negative cash flows - do not use parenthesis). b. What is the operating cash flows (OCF) for each of the years for this project? The OCF for each year of the project are $ [Round your answer to the nesrest dollar - no decimais - and commes are required to separate thousands and millions). c. What is the termination value (TV) cash flow (aka recovery cost or after-tax salvage value, liquidation value of the assets) at the end of the project? The termination value at the end of the project is $. (Round your answer to two the nearest doller- no decimals - and commiss are required to separate thousands and millions). d. What is the NPV of this project? The NPV of this project is $ (Round your answer to the nearest doilar-no decimals - and commas are required to separate thousands and millions Use negative sign for negative cash flows - do not use parenthesis)
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