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need help on all, thanks . The estimation of cash flows Consider the case of Arm 8 Leg. Financial Services Inc. (ABL)) Am 8 Leg
need help on all, thanks
. The estimation of cash flows Consider the case of Arm 8 Leg. Financial Services Inc. (ABL)) Am 8 Leg Financial Services Inc. (AsL.) currently eams annual revenues of $1,750,000 and incurs total operating expenses (excluding depreciation and interest expense) of 40% of revenues. Its earnings are taxed at a rate of 40%. Today, its budgeting committee is evaluating the purchase of a new security system. The security 5ystem is expected to cost $10,000, plus $3,500 in freight and setup expenses, and will be depreciated using straight-line depreclation. It is expected that the security system will have a useful life of 10 years and a salvage value equal to 25% of its purchase price. It is further expected that the security system will reduce the firm's losses due to customer shoplifting and employee theft, and cause a 35.00% increase in the firms annual sales and total operating expenses (exduding depreciation and interest expense). If the security system is purchased, the firm Will require an additonal $5,000 in net working capital (NWC). The company's existing security system is aimost completely worn out. It is fully depreciated and can't even be sold for scrap. As a resuit, there are no expected tax consequences associated with the disposal of the old secuifify system. Given this information, 1. Complete the folloning equstion that assists in the calculation of the firm's net investment (NiNV) for the new security systems and calculate its value. NiNV - Purchase price + Annusl depredation expense, which equals 111,013. NIKV = Purchase poice + Shipping and Intaliotion charges + Addienaf NWC, which equsts $18,500. NLNY = Purchale price + Addibanal NWC, which equals $15,000 2. Complete the following tale that can be used to compute the firm's incremental operating cash flows. Note: Round your answers to the nearest whole dollar. 3. Complete the following equation that assists in the calculation of the firm's terminal cosh fow for the new security system and calculate its value. NCFT - Operaung After-Tax Cash Flow + Salvage value, which totals $854,280 NCF1= Operating After-Tax Cash Flow + Recovery of Net working capital, which totals 5855,905 NCFT= Operating ARter-Tax Cash Flow + salvage value + Recovery of Net working capital, which totals $859,280 Step by Step Solution
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