Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Hi, I was able to solve parts 1-3 but need help solving 4-6. Apple is planning to launch a new easy-to-use kitchen appliance with a

Hi, I was able to solve parts 1-3 but need help solving 4-6.

Apple is planning to launch a new easy-to-use kitchen appliance with a touchscreen interface, the iToaster. Apple expects to sell 1 million and 2 million units in the first two years after launch, respectively, and then to discontinue this product. Each unit will sell for $200 in the first year after launch, and $150 in the second year. The costs of components and labor are $60 per unit, while salaries and other expenses add up to $10 million in each year the product is sold.

The factory that manufactures the iToaster requires an investment of $80 million right now and $40 million one year from now. It will take one year to complete, so production will only start in the second year. The factory will be depreciated linearly to zero over 5 years after its completion.

To get production up and running, Apple has to buy components worth $5 million immediately before the launch of the product, and add another $2 million worth of components to its inventory exactly one year later.

The firm's marginal tax rate is 34%.

Part 1. What is the annual depreciation (in $ million)?

The initial book value of the factory is: BV0 = 80 + 40 = 120

With linear depreciation over 5 years, the annual depreciation is: Dep. = 120 / 5 = 24 (million)

Answer: 24000000

Part 2. What is the net operating profit after taxes in year 2 (in $ million)?

Year 0 1 2
Units sold 1
* Price 200
= Revenue 200
- COGS 60
- Other expenses 10
- Depreciation 24
= EBIT 106
- Taxes (34%) 36.04
= NOPAT 69.96

(in million, except for price)

Answer: 69960000

Part 3. What is the net operating profit after taxes in year 3 (in $ million)?

Year 0 1 2 3
Units sold 1 2
* Price 200 150
= Revenue 200 300
- COGS 60 120
- Other expenses 10 10
- Depreciation 24 24
= EBIT 106 146
- Taxes (34%) 36.04 49.64
= NOPAT 69.96 96.36

Answer: 96360000

Part 4. What is the incremental cash flow (CF) at the end of year 0 (in $ million)?

??? Need Help. Tried answer = -850000 Not Correct

Part 5. What is the incremental cash flow (CF) at the end of year 1 (in $ million)?

??? Need Help. Tried answer = -42000000 Not Correct

Part 6. What is the incremental cash flow (CF) at the end of year 2 (in $ million)?

??? Need Help. Tried answer = 93960000 Not Correct

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

Financing Failure A Century Of Bailouts

Authors: Vern McKinley

1st Edition

1598130498,1598130560

More Books

Students also viewed these Finance questions

Question

How are private property rights defined?

Answered: 1 week ago