Boudreaux Chemical Corp. (BCC) is considering building a new plant to market a new product, "GaseXtension. This new product will increase the gas mileage for most vehicles by 30%. A market study indicates that there would be considerable demand for the product. This new chemical will be sold to service stations, retail stores etc. GaseXtension is added to a vehicle's gas through its gas tank. The following information has been gather to perform the economic analysis (capital budgeting). The land was purchased by BBC 12 years ago for $50,000 and its current market value after taxes is $2,000,000. The plant and equipment will cost $5,000,000. The depreciation method will be straight line for 5 years. The project will be analyzed for a 5 year period (terminate at end of 5 years). If the plant is built, current assets will increase at the initial investment by $1,000,000 while current liabilities will increase by $600,000 (t = 0). To sustain an increase in sales for year two, current assets will increase by another $300,000 while current liabilities will increase by $200,000 (at t = 1). To sustain the increase in sales for year three, current assets will increase by another $200,000 while current liabilities will increase by $100,000 (at t=2). At the end of the fifth year, the plant, equipment and the land will sell for $3,500,000 after taxes. If the project goes forward the following Pro Forma Income Statements apply: In 000,000's Year 1 2 3,4,5 6 Sales CGS Gross Admin/Other EBDT 3 3 1 2 8 4 4 1 3 12 6 6 1 5 Taxes are 40%, and the discount rate is 10%.. A Find the initial investment, the incremental cash flows and the terminal cash flow. Prepare the capital budgeting cash flow worksheet. Boudreaux Chemical Corp. (BCC) is considering building a new plant to market a new product, "GaseXtension. This new product will increase the gas mileage for most vehicles by 30%. A market study indicates that there would be considerable demand for the product. This new chemical will be sold to service stations, retail stores etc. GaseXtension is added to a vehicle's gas through its gas tank. The following information has been gather to perform the economic analysis (capital budgeting). The land was purchased by BBC 12 years ago for $50,000 and its current market value after taxes is $2,000,000. The plant and equipment will cost $5,000,000. The depreciation method will be straight line for 5 years. The project will be analyzed for a 5 year period (terminate at end of 5 years). If the plant is built, current assets will increase at the initial investment by $1,000,000 while current liabilities will increase by $600,000 (t = 0). To sustain an increase in sales for year two, current assets will increase by another $300,000 while current liabilities will increase by $200,000 (at t = 1). To sustain the increase in sales for year three, current assets will increase by another $200,000 while current liabilities will increase by $100,000 (at t=2). At the end of the fifth year, the plant, equipment and the land will sell for $3,500,000 after taxes. If the project goes forward the following Pro Forma Income Statements apply: In 000,000's Year 1 2 3,4,5 6 Sales CGS Gross Admin/Other EBDT 3 3 1 2 8 4 4 1 3 12 6 6 1 5 Taxes are 40%, and the discount rate is 10%.. A Find the initial investment, the incremental cash flows and the terminal cash flow. Prepare the capital budgeting cash flow worksheet
