Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

FIN3610, Inc., is planning to set up a new manufacturing plant in New York to produce safety tools. The company bought some land six years

image text in transcribed
image text in transcribed
FIN3610, Inc., is planning to set up a new manufacturing plant in New York to produce safety tools. The company bought some land six years ago for $4.3 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would sell for $4.6 million on an after-tax basis. In four years, the land could be sold for $4.8 million after taxes. The company hired a marketing firm to analyze the market at a cost of $250,000. Here is the summary of marketing report: We believe that the company will be able to sell 5,600, 6,300, 7,200, and 5,900 units each year for the next four years, respectively. We believe that $550 can be charged for each unit. We believe at the end of the four-year period, sales should be discontinued. The company belleves that fixed costs for the project will be $615,000 per year. Variable costs are $462,000, $519,750, 5594,000, 486,750 each year for the next four years, respectively. The equipment necessary for production will cost $2.5 million and will be depreciated according to a three-year MACRS schedule. At the end of the project, the equipment can be scrapped for $450,000. Net working capital of $325,000 will be required immediately. The company has a 21 percent tax rate, and the required return on the project is 9 percent. What is the capital spending cash flow of Year 0 and Year 4? Year O: $2,500,000, outflow Year 4: $355,500 inflow Year 0: 56,800,000, outflow Year 4: 55,155,500, inflow Year 0: $2,500,000, outflow Year 4: $4,800,000, Inflow Year 0: $7,100,000, outflow Year 4: $5,250,000, inflow What is the capital spending cash flow of Year 0 and Year 4? Year 0: $2,500,000, outflow Year 4: $355,500, inflow Year 0: $6,800,000, outflow Year 4: $5,155,500, inflow Year 0: $2,500,000, outflow Year 4: $4,800,000, inflow Year 0: $7,100,000, outflow Year 4: $5,250,000, inflow Year 0: $7,100,000, outflow Year 4: $5,155,500, inflow

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Capital Returns Investing Through The Capital Cycle A Money Managers Reports 2002-15

Authors: Edward Chancellor

1st Edition

1137571640, 978-1137571649

More Books

Students also viewed these Finance questions