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Frito Lay is considering a new line of potato chips. This will be a two year project. a. Frito Lay paid $1,000,000 last year to
Frito Lay is considering a new line of potato chips. This will be a two year project. a. Frito Lay paid $1,000,000 last year to a winning person who thought of the new line of potato chips. b. New equipment for the factory line will cost $12,000,000 and depreciation is by the 5-year MACRS method. Purchase of the equipment will require an increase in net working capital of $600,000 at time 0 (which will be recaptured at the end of the project). c. The new potato chips will generate an additional $6,000,000 in revenues in the first year and $4,000,000 in revenues in the second year. d. In addition to the additional revenues outlined in c. The new potato chips will decrease existing chip line revenues by $2,000,000 the first year. There will not be any effect in the second year. e. The new project is estimated to have expenses of $150,000 each year. f. At the conclusion of the project, the equipment can be sold for $7,000,000. g. The firms marginal tax rate is 20 percent, and the projects cost of capital is 7 percent. Please answer all questions in full detail. (show steps on finance calculator) thank you! The following is the MACRS Depreciation Table: Year 3-year 5-year 7-year 33.33% 20.00% 14.29% 44.44% 32.00% 24.49% 14.82% 19.20% 17.49% 7.41% 11.52% 12.49% 11.52% 8.93% 5.76% 8.93% 8.93% 4.45% What is the terminal cash flow (the last cash flow of the project not including the OCF)? Question 5 (1 point) What is the initial investment in this project (enter as a negative number)? Question 6 (1 point) What is the after tax OCF in year 1
Frito Lay is considering a new line of potato chips. This will be a two year project.
a. Frito Lay paid $1,000,000 last year to a winning person who thought of the new line of potato chips.
b. New equipment for the factory line will cost $12,000,000 and depreciation is by the 5-year MACRS method. Purchase of the equipment will require an increase in net working capital of $600,000 at time 0 (which will be recaptured at the end of the project).
c. The new potato chips will generate an additional $6,000,000 in revenues in the first year and $4,000,000 in revenues in the second year.
d. In addition to the additional revenues outlined in c. The new potato chips will decrease existing chip line revenues by $2,000,000 the first year. There will not be any effect in the second year.
e. The new project is estimated to have expenses of $150,000 each year.
f. At the conclusion of the project, the equipment can be sold for $7,000,000.
g. The firms marginal tax rate is 20 percent, and the projects cost of capital is 7 percent.
Please answer all questions in full detail. (show steps on finance calculator)
thank you!
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