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I can not figure out how to do this problem. Any help? Thanks You are trying to decide whether or not to put in some
I can not figure out how to do this problem. Any help? Thanks
You are trying to decide whether or not to put in some new capital equitment. You have a line that is running full and and you think you could sell more if you could make more. You can put new equipment on the line that will allow you to increase productiona nd sales by $300,000 You will generate 50 cents of profit for each dollar of incremental sales. You will also have to increase inventory by 25% of any increase in sales to support the increased volume. The equipment will costs $600,000 engineering and installation will cost $100,000 The company has a WACC of 15% but uses a hurdle rate of 18% for projects of this risk type. DO YOU WANT TO DO THIS PROJECT? Year CASH FLOW CALCULATIONS 0 1 Incremental sales growth Profit from increased sales increase in income before taxes Depreciation Estimated taxes at 35% Increase in income after taxes additional inventory cost of equipment cost of installation NET CASH FLOW Payback IRR NPV $600,000 $100,000 700000 Err:523 $593,220.34 700,000 ould make more. na nd sales by $300,000 per year. t the increased volume. 2 3 4 5 6 7 700,000 700,000 700,000 700,000 700,000 700,000 8 - 9 - 10Step by Step Solution
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