Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Comprehensive problem. The shrine corporation, a firm in the 34 percent marginal tax bracket with a 15 percent required rate of return or cost of
Comprehensive problem. The shrine corporation, a firm in the 34 percent marginal tax bracket with a 15 percent required rate of return or cost of capital, is considering a new project. The project involves the introduction of a new project. This project it's expected to last 5 years and then, because ths somewhat of a fad product, be terminated. Given the following information, determine the free cash flows associated with project, the projects net present value, the profitability index, and the internal rate of return. Apply the appropriate decision criteria. Cost of new plant and equipment. $6,900,000 Shipping and installation costs. $100,000 Unit sales Year Unit sold 1. 80,000 2. 100,000 3. 120,000 4. 70,000 5. 70,000 Sales price per unit. 250/unit in years 1-4/200/unit in year 5 Variable cost per unit. 130/units Working capital requirements There will be an initial working capital requirement of $100,000 just to get production started. For each year, the toal investment in net working capital will be equal to 10 percent of the dollar value of sales for that year. Thus, the investment in working capital will increase dring years 1-3, then decrease in year 4. Finally, all working capital is liquidated at the termination of project at the end of year 5 The deprecating method Use te simplified straight line method over 5 years. Assume that the plant and equipment will have no salvage value after 5 years
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started