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Need help ASAP Please Thank you RET Inc. currently has one product, low-priced stoves. RET Inc. has decided to sell a new line of medium-priced
Need help ASAP
Please Thank you
RET Inc. currently has one product, low-priced stoves. RET Inc. has decided to sell a new line of medium-priced stoves. Sales for the new line of stoves are estimated at $30 million a year. Variable costs are 75% of sales. The project is expected to last 10 years. In addition to the production variable costs, the fixed costs each year will be $4,000,000. The company has spent $1,000,000 in research and a marketing study that determined the company will lose $10 million in sales a year of its existing low-priced stoves. The production variable cost of the existing low-priced stoves is $8 million a year. The plant and equipment required for producing the new line of stoves costs $10,000,000 and will be depreciated down to zero over 20 years using straight-line depreciation. It is expected that the plant and equipment can be sold (market or scrap value) for $6,000,000 at the end of 10 years. The new stoves will also require today an increase in net working capital of $2,000,000 that will be returned at the end of the project. The tax rate is 40 percent and the cost of capital is 10%. 1. What is the initial outlay (IO) for this project? 2. What is the annual Earnings before Interests, Taxes, and Depreciation (EBIDTA) for this project? A 3. What is the annual taxable income (or earnings before taxes) for this project? A/ 4. What is the annual Net Income (NI) for this project? 5. What is the operating cash flow (OCF) for this project? A 6. What is the remaining book value for the plant at equipment at the end of the project? A/ 7. What is the termination value for this project? 8. What is the Net Present Value (NPV) for this projectStep by Step Solution
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