FIN3030 Assignment 4 Case Description Boomerang Inc. Step-by-Step Practice in Cash flow development 1. Basic problem. Boomerang Inc. is considering a new 4-year project. It will require the purchase of a $4.0 million machine with an additional $100,000 for shipping and $200,000 for installation. The machine will be depreciated straight-line to zero over its four-year economic life, after which it will have no salvage value. The project is expected to have sales of 100,000 units per year at a price of $20 per unit. There will be fixed costs of $20,000 per year and variable cost per unit of $6.25 per unit. The companys marginal tax rate is 35%. Their cost of capital is 10 percent.

2. Accelerated depreciation and sale of a capital asset. Same as in problem 2 except that the equipment will be depreciated as a MACRS 5- year asset and can be sold at the end of 4 years for $450,000.

3. Dealing with growth. Same as the problem above except that the unit sales are expected to grow at a rate of 5% per year. Costs and prices are subject to inflation of 3% per year.

4. Dealing with capacity limits. Same as in problem 4 except that production cannot exceed the machine capacity of 115,000 units per year

5. Dealing with working capital needs. Same as in problem 3 except that the company will need working capital each year equal to 5% of next years sales.