Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I cannot use excel I am using a financial calculator. please explain the exact steps! thank you! Suppose you are evaluating a project for The

image text in transcribed

I cannot use excel I am using a financial calculator. please explain the exact steps! thank you!

Suppose you are evaluating a project for The Ultimate Golf Club, guaranteed to correct the hacker's slice. You estimate the sales price of The Ultimate to be $400 and sales to be 1,000 units per year. You figure the project has a life of 3 years. Variable costs amount to $200 per unit and fixed costs are $120,000 per year. The project requires an initial investment of $165,000 which is depreciated straight-line over 5 years. The actual market value of the initial investment after year 3 is $45,000. Net working capital investment is $75,000. The tax rate is 34%. The risk of this project is very similar to the company's other businesses. The company's capital structure is as follows: Common Stock: 1 million shares outstanding, currently selling for $35 per share. The stock has a Beta of 1.2. Bonds: 20,000 bonds outstanding, $1000 face value for each bond, 7% annual coupon, 10 years to maturity, Selling at 100% of par. Market risk premium: 8% Risk free rate: 6% a. What is the project's operating cash flow during its three-year life? (8 points) b. What is the project's total cash flows? (8 points)

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

Step: 3

blur-text-image

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

Fundamentals Of Healthcare Finance

Authors: Paula H. Song, Kristin L. Reiter

4th Edition

1640553223, 978-1640553224

More Books

Students also viewed these Finance questions