Question
Disregard, I figured it out. Below are the questions with correct answers. I can't get the the answers given, please provide process to arriving to
Disregard, I figured it out.
Below are the questions with correct answers. I can't get the the answers given, please provide process to arriving to these answers. The problem is also included.
What is the cash flow due to tax on salvage value for this project? | 0 | |||||
What is the project's cash flow for year 10 for this project? | 15,360,000 | |||||
What is the Net Present Value (NPV) for this project? | (1,866,271) |
Problem: REX Inc. currently has one product, low-priced stoves. REX Inc. has decided to sell a new line of medium-priced stoves. Sales revenues for the new line of stoves are estimated at $60 million a year. Variable costs are 90% of sales. The project is expected to last 10 years. Also, non-variable costs are 2,500,000 per year. The company has spent $1,000,000 in research and a marketing study that determined the company will lose (cannibalization) $2.8 million in sales a year of its existing low-priced stoves. The production variable cost of the existing low-priced stoves is $1.5 million a year. The plant and equipment required for producing the new line of stoves costs $15,000,000 and will be depreciated down to zero over 30 years using straight-line depreciation. It is expected that the plant and equipment can be sold (salvage value) for $10,00,000 at the end of 10 years. The new stoves will also require today an increase in net working capital of $3.500,000 that will be returned at the end of the project. Tax rate 20%. Cost of capital 10%. |
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