Not Sure if correct. PLEASE help. THANK YOU!
9. The estimation of cash flows Consider the case of Beak's Birdhouse Builders Inc. (B3): Beak's Birdhouse Builders Inc. (B3) currently earns annual revenues of $1,500,000 and incurs total operating expenses (excluding depreciation and interest expense) of 45% of revenues. Its earnings are taxed at a rate of 40%. Today, its budgeting committee is evaluating the purchase of a new computerized table saw. The table saw is expected to cost $15,000, plus 53,500 in freight and setup expenses, and will be depreciated using straight-line depreciation. It is expected that the table saw will have a useful life of ten years and a salvage value equal to 25% of its purchase price. It is further expected that the table saw will increase the firm's productivity and cause a 25.00% increase in the firm's annual sales and total operating expenses (excluding depreciation and interest expense). If the table saw is purchased the firm will require an additional $5,000 in net working capital (NWC). The company's existing table saw is almost completely worn out. It is fully depreciated and can't even be sold for scrap. As a result, there are no expected tax consequences associated with the disposal of the old table saw. Given this information + 1. Complete the following equation that assists in the calculation of the firm's net investment (NINV) for the new table saw and calculate its value. NINV = Purchase price + Shipping and Installation charges + Additional NWC, which equals $23,500. NINV = Purchase price + Annual depreciation expense, which equals $15,388. NINV = Purchase price + Shipping and Installation charges, which equals, $18,500. 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. Revenues Firm Value With Table Saw $1,875,000 5843,750 Firm Value Without Table Saw Net Change $1,500,000 $375,000 $675,000 $168,750 Less: Expenses $1,500 $0 $1,110 $1,029,862 $825,000 $204,862 $330,000 Less: Depreciation Expense Earnings Before Taxes Less: Taxes Earnings After Taxes Plus: Adjustment for Non-Cash Expenses Net Cash Flow 5411.945 5617,917 $81,945 $122.917 $495,000 $1,388 0 $1,388 $616,529 $495,000 $124,305 3. Complete the following equation that assists in the calculation of the firm's terminal cash flow for the new table saw and calculate its value. O NCF, = Operating After-Tax Cash Flow + Recovery of Net working capital + Difference in depreciation expense, which totals $501,388 ONCFT = Operating After-Tax Cash Flow - Recovery of Net working capital, which totals $624,305 O NCFT = Operating After-Tax Cash Flow + Salvage value + Recovery of Net working capital, which totals $628,930
