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(Calculating cash flows--comprehensive problem) The C Corporation, a firm in the 36 percent marginal tax bracket with a required rate of return or discount rate
(Calculating cash flows--comprehensive problem) The C Corporation, a firm in the 36 percent marginal tax bracket with a required rate of return or discount rate of 13 percent is considering a new project This project involves the introduction of any product. This project is expected to last 5 years and then because this is somewhat of a tad product, it will be terminated. Given the following information determine the net cash flows associated with the project the projects net present value the profitability index, and the internal rate of return Apply the appropriate decision criteria Data Table Cost of now plant and equipment Shipping and installation costs Unit salos $178,000,000 $2,200,000 Year 1 2 3 4 5 Units Sold 1,300.000 2.000.000 2.000.000 1.400.000 1.000.000 Sales price per unit Variable cost per unit Annual fixed costs Working capital requirements $1,100/unit in years 1 through 4 5900/unit in year 5 $450/unit $8.000.000 There will be an initial working capital regurement of $1 800.000 to get production started for each year, the total investment in not working capital will be equal to 9 percent of the dollar value of sales for that year. Thus the investment in working capital will increase during years 1 through 3, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project at the end of year 5 Use the simplified straight line method over 5 years it is assumed that the plant and equipment will have no Salvage value after 5 years The depreciation method
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