Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Attached below is a finance question. Please help me with the question. 1. Today, you are evaluating a 3-year investment opportunity in a popsicle stand.

Attached below is a finance question. Please help me with the question.

image text in transcribed 1. Today, you are evaluating a 3-year investment opportunity in a popsicle stand. The purchase price is $350K and includes all relevant costs associated with the implementation of the stand/popsicle maker (such as shipping and assembly). The asset's useful life is 3-years and its book value will be straight-line depreciated down to an end-of-life book value of $110K. You plan to sell the stand at an anticipated salvage value (i.e., selling price) of $116K at the end of year 3. Net working capital (NWC) is expected to increase by $45K at t=0 and decline by $45K at t=3. The popsicle stand is expected to provide cash sales of $325K per year, and will require cash expenses of $120K each year. The relevant marginal tax rate for this analysis is 20%. (a) Your task is to use the following table to identify all relevant cash flows and then calculate cashflows for all relevant points of time in your horizon: t=0 (3 marks), t=1 (3 marks), t=2 (3 marks), andt=3( 7 marks ). t=0 t=1 t=2 t=3(oper.) t=3(term.) Oper.Inc. + Dep.Exp Tax.Exp NetCapitalSpending NetWrk.Capital + GainonSale LossonSale CASHFLOW (b) After calculating all of the relevant cash flows in part a, use a discount rate 25% to calculate the NPV for this popsicle stand. Should you invest in the project or reject it? (4 marks) 1

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

Introduction To Finance Markets, Investments, And Financial Management

Authors: Ronald W. Melicher, Edgar A. Norton

17th Edition

1119561175, 978-1119561170

More Books

Students also viewed these Finance questions