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 operating cash flow @ t=1 ? 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

Financial Markets And Institutions

Authors: Frederic S. Mishkin, Stanley Eakins

6th International Edition

0321552113, 9780321552112

More Books

Students also viewed these Finance questions

Question

Need help on cost accounting take home test

Answered: 1 week ago