Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

just tell me the one time cfrevenue cost red form Paper Street Soap Company is considering opening a new manufacturing plant to produce more soap.

image text in transcribedimage text in transcribed

just tell me the one time cfrevenue cost red form

Paper Street Soap Company is considering opening a new manufacturing plant to produce more soap. The building itself would cost $1,080,000. To utililize the plant they would also need a new machine that is projected to cost $390,000. The machine would have to be replaced every 5 years. Each time, the machine will be depreciated to $0 over its life and scrapped at the end. The cost of the machine is not expected to change over time. The building will be depreciated to a salvage value of $410,000 over it's life, and at that point the company expects to be able to sell the building for $450,000. The company has some uncertainty around what annual revenues and expenses will be, and they want to you run a Monte Carlo simulation to estimate expected NPV and the probabaility that NPV will be positive. For the simulation, you should assume that the first year's revenue will follow a normal distribution with a mean of $1,600,000 and a standard deviation of $45,000, and that every year after that, revenue growth will follow a normal distribution with a mean of 0.7% and a standard deviation of 0.6%. Similarly, you can assume that the first year's cost will follow a normal distribution with a mean of $720,000 and a standard deviation of $13,000, and that every year after that, cost growth will follow a normal distribution with a mean of 0.3% and a standard deviation of 0.8%. The The project would also requirean increase in net working capital of $420,000. Paper Street has a marginal tax rate of 25% and would require an 8% return to pursue the project. Fill in all the missing information to project the cash flows for Universal's proposed expansion. (5 points per column) Paper Street Soap Company is considering opening a new manufacturing plant to produce more soap. The building itself would cost $1,080,000. To utililize the plant they would also need a new machine that is projected to cost $390,000. The machine would have to be replaced every 5 years. Each time, the machine will be depreciated to $0 over its life and scrapped at the end. The cost of the machine is not expected to change over time. The building will be depreciated to a salvage value of $410,000 over it's life, and at that point the company expects to be able to sell the building for $450,000. The company has some uncertainty around what annual revenues and expenses will be, and they want to you run a Monte Carlo simulation to estimate expected NPV and the probabaility that NPV will be positive. For the simulation, you should assume that the first year's revenue will follow a normal distribution with a mean of $1,600,000 and a standard deviation of $45,000, and that every year after that, revenue growth will follow a normal distribution with a mean of 0.7% and a standard deviation of 0.6%. Similarly, you can assume that the first year's cost will follow a normal distribution with a mean of $720,000 and a standard deviation of $13,000, and that every year after that, cost growth will follow a normal distribution with a mean of 0.3% and a standard deviation of 0.8%. The The project would also requirean increase in net working capital of $420,000. Paper Street has a marginal tax rate of 25% and would require an 8% return to pursue the project. Fill in all the missing information to project the cash flows for Universal's proposed expansion. (5 points per column)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered 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

Students also viewed these Accounting questions