Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

MAA Corp.currently has one product high-priced lawn mowers. AAA Corp. has decided to sell a new line of medium-priced lawn mowers. The building and machinery

image text in transcribed
MAA Corp.currently has one product high-priced lawn mowers. AAA Corp. has decided to sell a new line of medium-priced lawn mowers. The building and machinery for producing this new line is estimated to cost $12,000,000 and it will be depreciated down to zero over 10 years using straight-line depreciation. Also, an investment today on working capital in the amount of $2,000,000 is needed. The working capital will be recovered at the end of the project, Sales for the new line of lawn mowers are estimated at $18 million a year Annual variable costs are 60% of sales. The project is expected to last 10 years. In addition to the production variable costs, the fixed costs each year will be $3,000,000. The company has spent $1,000,000 in a marketing study that determined the company will lose $10 milion in sales a year of its existing high-priced lawn mowers The production variable cost of these sales is $a mition a year, it is expected that at the end of the project the building and machinery can be sold for $8,000,000. The tax rato is 30 percent and the cost of capital is 10% a. What is the initial outlay (10) for this project? The Initial Outay is $(Round your answer to the nearest dottor - no decimals - and common are required to separate thousands and mons. Use neguve sign for negative cash flows - do not use parenthesis) b. What is the operating cash flows (OCF) for each of the years for this project? The OCF for each year of the project are Round your answer to the nearest coller- no decimals - and common are required to separate thousands and millions) c. What is the termination value (TV) cash flow (aka recovery cost or after-tax salvage value, or liquidation value of the assets) at the end of the project? The termination value at the end of the project in s (Round your answer to two the nearest dollar. no decimals - and commes are regured to separate thousands and milions) d. What is the NPV of this project? Tho NPV of this project in $. Round your answer to the nearest dollar - no decimals and common are required to separate thousands and milions Use negative sign for negative cash flows do not use parenthesis) is

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

The Evolution Of Nordic Finance

Authors: Steffen ElkiƦr Andersen

2011th Edition

0230241557, 978-0230241558

More Books

Students also viewed these Finance questions