Question
Aunt Sallys Sauces Inc., is considering expansion into a new line of all-natural, cholesterol-free, sodium-free, fat-free, low-calorie tomato sauces. Sally has paid $23,000 for a
Aunt Sallys Sauces Inc., is considering expansion into a new line of all-natural, cholesterol-free, sodium-free, fat-free, low-calorie tomato sauces. Sally has paid $23,000 for a marketing study which indicates that the new product line would have sales of $680,000 per year for the next six years. Manufacturing plant and equipment would cost $600,000 and will be depreciated using the following annual depreciation rates: 0.2, 0.32, 0.1920, 0.1152, 0.1152, 0.0576. The fixed assets will have no market value at the end of six years. Annual fixed costs are projected at $80,000 and variable costs are projected at 65% of sales. Net operating working capital requirements are $75,000 for the six-year life of the project; the outlay for working capital will be recovered at the end of six years. Aunt Sallys tax rate is 25% and the firm requires a 11% return. The projected Free Cash Flow(FCF) in the 3rd year is $_.
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