Question
Altima Inc. manufactures financial calculators. The company is deciding whether to introduce a new calculator. This calculator will sell for $150. The company feels that
Altima Inc. manufactures financial calculators. The company is deciding whether to introduce a new calculator. This calculator will sell for $150. The company feels that sales will be 10,000, 10,000, 10,000, 14,000, 14,000 and 14,000 units per year for the next 6 years. Variable costs will be 15% of sales, and fixed costs are $1,000,000 per year. The firm hired a marketing team to analyze the viability of the product and the marketing analysis cost $2,500,000. The company plans to use a vacant warehouse to manufacture and store the calculators. Based on a recent appraisal the warehouse and the property is worth $10 million on an after-tax basis. If the company does not sell the property today then it will sell the property 6 years from today at the currently appraised value. This project will require an injection of net working capital at the onset of the project in the amount of $2,000,000. This net working capital will be fully recovered at the end of the project. The firm will need to purchase some equipment in the amount of $3,800,000 to produce the new calculator. The firm is able to sell the machine at the end of the project for $1,000,000. The firm requires a 9% return on its investment and has a tax rate of 21%.
The equipment is depreciated using a 7-year MACRS schedule.
Calculate the cash flow from assets at the end of year 6. (Round to two decimals)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started