Active Life Ltd has decided to manufacture a new line of running shoes based on a...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Active Life Ltd has decided to manufacture a new line of running shoes based on a $50,000, two-year feasibility study. The shoes will sell for $85 a pair and has a variable cost of $30 a pair. It is estimated that the company will sell 70,000 pairs per year for the next three years. Fixed costs each year will be $700,000. The initial outlay includes $9,000,000 million to build production facilities. This facility will be depreciated to zero salvage value using the prime cost method over the life of the project. At the end of the project the facilities will be sold for an estimated value of $5,000,000. Active will also buy some land to build the facility. The land will cost $1,000,000. The land will not be depreciated and is expected to sell for $1,000,000 at the end of the project without any tax implication. Active Life Ltd's required payback is 2 years and the required rate of return is 12% p.a. The relevant tax rate is 30% and tax is paid in the year in which earnings are received. A. Calculate the incremental cash flows of the new project for each year (Yo to Y3 inclusive). B. Calculate the payback period of the project. (Show answer correct to 4 decimal places.) C. Calculate the net present value (NPV) of the project. (Show answer correct to 2 decimal places.) D. Calculate the present value index of the project. (Show answer correct to 4 decimal places.) E. Should the company accept this project? Why or why not? Active Life Ltd has decided to manufacture a new line of running shoes based on a $50,000, two-year feasibility study. The shoes will sell for $85 a pair and has a variable cost of $30 a pair. It is estimated that the company will sell 70,000 pairs per year for the next three years. Fixed costs each year will be $700,000. The initial outlay includes $9,000,000 million to build production facilities. This facility will be depreciated to zero salvage value using the prime cost method over the life of the project. At the end of the project the facilities will be sold for an estimated value of $5,000,000. Active will also buy some land to build the facility. The land will cost $1,000,000. The land will not be depreciated and is expected to sell for $1,000,000 at the end of the project without any tax implication. Active Life Ltd's required payback is 2 years and the required rate of return is 12% p.a. The relevant tax rate is 30% and tax is paid in the year in which earnings are received. A. Calculate the incremental cash flows of the new project for each year (Yo to Y3 inclusive). B. Calculate the payback period of the project. (Show answer correct to 4 decimal places.) C. Calculate the net present value (NPV) of the project. (Show answer correct to 2 decimal places.) D. Calculate the present value index of the project. (Show answer correct to 4 decimal places.) E. Should the company accept this project? Why or why not?
Expert Answer:
Answer rating: 100% (QA)
ANSWER To solve this problem we need to calculate the incremental cash flows payback period net pres... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
1100 Cash 1120 Accounts Receivable 1130 Merchandise Inventory 1140 Prepaid Insurance 1150 Prepaid Rent 1160 Office Supplies 2100 Accounts Payable 3100 Jack Simmons, Capital 3200 Jack Simmons, Drawing...
-
Active Life Ltd has decided to manufacture a new line of running shoes based on a $50,000, two-year feasibility study. The shoes will sell for $85 a pair and has a variable cost of $30 a pair. It is...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Assume that self-esteem measurements are not affected by an interaction between subject self-esteem and target self-esteem. Is there sufficient evidence to support the claim that the category of the...
-
Why do you suppose that airplane windows are smaller than bus windows?
-
Give IUPAC names for the following compounds: o (c) CHH2H2 CH2CH3 (a) (b) CH3CH2CHCHI NH2 (d) (e) (f) CH3CHCH,NHCH3 CH-CH-C H CH Br (h) (g) SCH(CH3)2
-
Revise cash payments for purchases (Learning Objective 4) Refer to the original Whitewater Sporting Goods Data Set item 5. Suppose Whitewater Sporting Goods pays for \(60 \%\) of inventory purchases...
-
Preston Enterprises uses the direct write-off method of accounting for uncollectible accounts. On October 12, a very large account was written off. The amount was subsequently recovered on December...
-
Solve the 2nd-order homogeneous Cauchy-Euler equation x?y' + 7xy' + 73y = 0 The linearly independent solutions are y1 = 1/x^3cos(8log(x)) X y2 = 1/x^3sin(8log(x)) and the general solution of the...
-
Can u answer these? PRE-CALCULUS/TRIGONOMETRY 3 CUMULATIVE REVIEW Name an Date Complete the following cumulative review problems. Circle your answer and place on Scantron. Block You must show your...
-
You are selling a software product called "Link" which is available in high and low quality versions called Link Professional and Link Home respectively. You have 2 units of Link Professional and 2...
-
Remarks: Make sure you use the right units in your calculations and in your results. [30] Q1) Which of the two processes require more heat input? Explain your reasoning with calculations. a)...
-
This week you learned how important it is to develop your branding and differentiate your product. As you do this you want to remember to look at this from your customer\'s point of view. For this...
-
As we near the end of this course, it is time to begin thinking about what comes next. Please reflect upon and answer the following questions: What do you hope to do with your degree? Which course...
-
JSOM Company makes custom furniture and uses a joborder-cost system.The company always writes off under/over applied overhead to cost of goods sold.The following data pertains to the first quarter of...
-
Please help me with this question Jerry Ambers opened a landscaping business, Ambers Design, on September 3 2019. During the first month of operations, the business completed the following...
-
Cobb Manufacturing Company uses a process cost system and average costing. The following production data is for the month of June 2011. Production Costs Work in process, beginning of the month:...
-
Fitch and Wall have been in partnership for many years sharing profits and losses in the ratio 5 : 3 respectively. The following was their balance sheet as at 31 December 2002. On 1 January 2003,...
-
The Unilever 2002 annual review stated: Total Shareholder Return (TSR) is a concept used to compare the performance of different companies stocks and shares over time. It combines share price...
-
On the Internet find the 2010 Transparency International Corruption Perception Index and determine the ranking of these countries. a. United States b. Japan c. Chad d. Iceland e. Denmark
Study smarter with the SolutionInn App