Expansion and replacement 1

Capital Budgeting Problems Problem 1: 10 points You are evaluating a new project for Globex Corporation as the company is planning to launch a new and very efficient mobile device named Meta-5050. The new product is expected to run for 5 years. To produce this new product, Globex needs to purchase new equipment that will cost $750,000. The company needs to spend another $10,000 for shipping and installation. You estimate the sales price of Meta- 5050 to be $650 per unit and sales volume to be 800 units in year 1;1,400 units in years 24; and 500 units in year 5 . The cost of the contents, packaging and shipping are expected to be $225 per unit and the annual fixed costs for this project are $150,000 per year. The equipment will be depreciated straight-line to zero over the 5 -year project life. The actual market value (salvage value) of these assets at the end of year 5 is expected to be $35,000. If this project is taken up, inventory will increase by $72,000, accounts receivable will increase by $36,850, and accounts payable will increase by $35,000 in the beginning. Assume a tax rate of 25% and the cost of capital for the company is 10%. What will the cash flows for this project be? Will you accept this project? Why or why not? Show all of the calculations, cash flows, and analysis for credit. Capital Budgeting Problems Problem 1: 10 points You are evaluating a new project for Globex Corporation as the company is planning to launch a new and very efficient mobile device named Meta-5050. The new product is expected to run for 5 years. To produce this new product, Globex needs to purchase new equipment that will cost $750,000. The company needs to spend another $10,000 for shipping and installation. You estimate the sales price of Meta- 5050 to be $650 per unit and sales volume to be 800 units in year 1;1,400 units in years 24; and 500 units in year 5 . The cost of the contents, packaging and shipping are expected to be $225 per unit and the annual fixed costs for this project are $150,000 per year. The equipment will be depreciated straight-line to zero over the 5 -year project life. The actual market value (salvage value) of these assets at the end of year 5 is expected to be $35,000. If this project is taken up, inventory will increase by $72,000, accounts receivable will increase by $36,850, and accounts payable will increase by $35,000 in the beginning. Assume a tax rate of 25% and the cost of capital for the company is 10%. What will the cash flows for this project be? Will you accept this project? Why or why not? Show all of the calculations, cash flows, and analysis for credit