Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Anderson Industries is considering a new project and estimates sales of $5,000,000 per year for five years. They estimate variable expenses of $3,750,000 annually and

image text in transcribed

Anderson Industries is considering a new project and estimates sales of $5,000,000 per year for five years. They estimate variable expenses of $3,750,000 annually and $800,000 in annual fixed expenses (excluding depreciation). Included in the $800,000 annual estimate of fixed expenses is $350,000 in incremental costs of maintaining the new facility, $250,000 in allocations of existing costs for corporate expenses and $200,000 in new incremental human resource and customer service costs related to the project. Anderson has already spent $500,000 over the past 5 years developing this new project. At the start of the project and in every year of the project net operating working capital will be 7% of next year's expected sales. At the end of the five-year project the net working capital will no longer be required. The project will require an initial investment in new plant construction and equipment of $2,500,000. They plan to operate this plant for five years and have already spent $150,000 on architect's fees for the plant design. This plant will be built on land that they acquired ten years ago for $100,000 (land is not depreciated) across the street from their current facility. This land has a current market value of $300,000. The IRS requires Anderson to depreciate the plant and equipment to a value of zero on straight-line basis for five years. At the end of five years they expect to be able to sell the land, plant and equipment for $600,000 The tax rate is 20% and Anderson has an Opportunity Cost oif Capital of 9%. 1. (5 points) Provide the incremental project NOPAT for the five years of the project 2. (7 points) Provide the Free Cash Flows generated by the project for years 0-5. 3. (3 Points) Calculate the NPV of the project

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 Management For Nurse Managers Merging The Heart With The Dollar Merging The Heart With The Dollar

Authors: J. Michael Leger, Janne Dunham-Taylor

4th Edition

1284127257, 978-1284127256

More Books

Students also viewed these Finance questions

Question

=+3. Who can provide information for evaluation?

Answered: 1 week ago