Question
Extremely Wild Wings (EWW) is considering introducing a new level of super hot wings called 911 Wings. The 911 Wings would require a special prepartion
Extremely Wild Wings (EWW) is considering introducing a new level of super hot wings called 911 Wings. The 911 Wings would require a special prepartion process and new equipment. The cost of the new equipment is $50,000 and falls into the 3-Year MACRS Depreciation Class (yr 1: 33%, yr 2: 45%, yr 3: 15%, yr 4: 7%) and would require an increase in net working capital of $3,000. The expected life of the project is 3 years. EWW has already spent $1,500 on a marketing analysis that shows that sales would increase $40,000 in year 1 of the project, $30,000 in year 2, and $18,000 in year 3. Additional operating costs other than depreciation will be 20% of sales. The expected salvage value at the end of the projects 3 year life is $10,000 and any increases in net working capital during the life of the project will be recovered or liquidated at the end of the projects expected life. The companys marginal tax rate is 40% and the company will have enough other taxable income to more than offset any taxable losses from the 911 Wings project. EWWs WACC is 10%. What is the terminal (non-operating) cash flow at the end of year 3 for the 911 Wings project?
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