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Corporate Finance Question Please solve in detail and I will upvote Appliances Inc. is about to launch a new range of aluminum stoves, priced at
Corporate Finance Question Please solve in detail and I will upvote
Appliances Inc. is about to launch a new range of aluminum stoves, priced at $120 per unit. The unit cost of the stoves is $75. The firm expects to sell the stoves over the next 5 years. The venture will require an initial investment in plant and equipment of $30,000. Assume that the investment will be in an asset class with a CCA rate of 15%. At the end of 5 years, the project ends; plant and equipment will have a zero salvage value and Appliances Inc. will continue to have other assets in this asset class. Sales projections for the stoves are as follows: Year Unit Sales 1 350 2 380 3 420 4. 500 5 550 The net working capital requirement (including the initial working capital needed in year O) is expected to be 20% of the following year's sales. The firm's tax rate is 32% and the discount rate is 15%. (You can write your answers in a piece of paper and scan it, or type your answers in a word document or an excel spreadsheet. Your answers should be attached to this question or submitted using the Final Exam Dropbox) a. What is the investment in net working capital at the beginning of each year over the life of the project? (You may use a table to show your calculations) [5 marks] b. What are the operating cash-flows (excluding CCA) in years 1 to 5? (You may use a table to show your calculations) [10 marks] c. What is the PV(CCATS) from the investment? [5 marks] d. What is the NPV of this project? Should the firm undertake this project or not? (You may use a table to show your calculations) (10 marks]Step by Step Solution
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