Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Aero Motorcycles is considering opening a new manufacturing facility in Fort Worth to meet the demand for a new line of solar-charged motorcycles (who wants

image text in transcribed

Aero Motorcycles is considering opening a new manufacturing facility in Fort Worth to meet the demand for a new line of solar-charged motorcycles (who wants to ride on a cloudy day anyway?) The proposed project has the following features; The firm just spent $300,000 for a marketing study to determine consumer demand (@ t=0). Aero Motorcycles purchased the land the factory will be built on 5 years ago for $2,000,000 and owns it outright (that is, it does not have a mortgage). The land has a current market value of $2,600,000. The project has an initial cost of $20,000,000 (excluding land, hint: the land is not subject to depreciation). If the project is undertaken, at t = 0 the company will need to increase its inventories by $3,500,000, accounts receivable by $1,500,000, and its accounts payable by $2,000,000. This net operating working capital will be recovered at the end of the project's life (t = 10). If the project is undertaken, the company will realize an additional $8,000,000 in sales over each of the next ten years. (i.e. sales in each year are $8,000,000) The company's operating cost (not including depreciation) will equal 50% of sales. The company's tax rate is 35 percent. Use a 10-year straight-line depreciation schedule. At t = 10, the project is expected to cease being economically viable and the factory (including land) will be sold for $4,500,000 (assume land has a book value equal to the original purchase price). The project's WACC = 10 percent Assume the firm is profitable and able to use any tax credits (i.e. negative taxes). What is the total cash flow at t=10? Round to nearest whole dollar value

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

The Money Markets Handbook A Practitioners Guide

Authors: Moorad Choudhry

1st Edition

0470821507, 978-0470821503

More Books

Students also viewed these Finance questions

Question

The nature and importance of the global marketplace.

Answered: 1 week ago