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At present, Solartech Skateboards is considering expanding its product line to include gas - powered skateboards; however, it is questionable how well they will be
At present, Solartech Skateboards is considering expanding its product line to include gaspowered skateboards; however, it is questionable how well they will be received by skateboarders. While you feel there is a percent chance you will sell of these per year for years after which time this project is expected to shut down because solarpowered skateboards will become more popular you also recognize that there is a percent chance that you will only sell and also a percent chance you will sell The gas skateboards would sell for $ each and have a variable cost of $ each. Regardless of how many you sell, the annual fixed costs associated with production would be $ In addition, there would be a $ initial expenditure associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the simplified straightline method down to zero over years. Because of the number of stores that will need inventory, the working capital requirements are the same regardless of the level of sales, and this project will require a onetime initial investment of $ in net working capital, and that workingcapital investment will be recovered when the project is shut down. Finally, assume that the firms marginal tax rate is percen
a What is the initial outlay associated with the project?
b What are the annual free cash flows associated with the project for years through under
each sales forecast? What are the expected annual free cash flows for years through
c What is the terminal cash flow in year that iswhat is the free cash flow in year plus any additional cash flows associated with the termination of the project
d Using the expected free cash flows, what is the projects NPV given a percent required rate of return? What would the projects NPV be if skateboards were sold?
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