FIN 320-092 Fall 2020 Homework: HW Ch 11 Save Score: 0.08 of 1 pt 7 of 11 (10 complete) HW Score: 78.1%, 10.93 of (Comprehensive problem) Traid Winds Corporation, a firm in the 35 percent marginal tax bracket with a required rate of retum or cost of capital of 12 percent is considering a new project. This project involves the introduction of a new product. The project is expected to last 5 years and then, because this is somewhat of a fad product, be terminated. Given the information in the popup window, determine the free cash flows associated with the project, the project's net present value, the profitability index, and the internal rate of retum. Apply the appropriate decision criteria a. What is the initial outlay associated with this project? $ 15320000 (Round to the nearest dollar.) b. What is the annual free cash flow associated with this project in year 17 (Round to the nearest dollar) - Data Table Cost of new plant and equipment Shipping and installation costs Unit sales $14,800,000 $300,000 YEAR 1 2 3 4 5 UNITS SOLD 75,000 125,000 125,000 85,000 75,000 Sales price per unit Variable cost per unit Annual fixed costs Working-capital requirements $360/unit in years 1 through 4 $310/unit in year 5 $140/unit $900,000 per year in years 1-5 There will be an initial working-capital requirement of $220,000 just to get production started. For each year, the total investment in net working capital will be equal to 20 percent of the dollar value of sales for that year. Thus, the investment in working capital will increase during years 1 and 2, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project at the end of year 5. Use the simplified straight-line method over 5 years. Assume that the plant and equipment will have no salvage value after 5 years. Depreciation method FIN 320-092 Fall 2020 Homework: HW Ch 11 Save Score: 0.08 of 1 pt 7 of 11 (10 complete) HW Score: 78.1%, 10.93 of (Comprehensive problem) Traid Winds Corporation, a firm in the 35 percent marginal tax bracket with a required rate of retum or cost of capital of 12 percent is considering a new project. This project involves the introduction of a new product. The project is expected to last 5 years and then, because this is somewhat of a fad product, be terminated. Given the information in the popup window, determine the free cash flows associated with the project, the project's net present value, the profitability index, and the internal rate of retum. Apply the appropriate decision criteria a. What is the initial outlay associated with this project? $ 15320000 (Round to the nearest dollar.) b. What is the annual free cash flow associated with this project in year 17 (Round to the nearest dollar) - Data Table Cost of new plant and equipment Shipping and installation costs Unit sales $14,800,000 $300,000 YEAR 1 2 3 4 5 UNITS SOLD 75,000 125,000 125,000 85,000 75,000 Sales price per unit Variable cost per unit Annual fixed costs Working-capital requirements $360/unit in years 1 through 4 $310/unit in year 5 $140/unit $900,000 per year in years 1-5 There will be an initial working-capital requirement of $220,000 just to get production started. For each year, the total investment in net working capital will be equal to 20 percent of the dollar value of sales for that year. Thus, the investment in working capital will increase during years 1 and 2, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project at the end of year 5. Use the simplified straight-line method over 5 years. Assume that the plant and equipment will have no salvage value after 5 years. Depreciation method
