Note: Please I don't want the answer to be handwriting, also please answer the both part B&C. Thank you!
Homework Part 2 of 15 Calculating free cash flows) Al present Solartech Skateboards is considering expanding its product line to include gas-powered skateboards, however, it is questionable how well they will be received by skateboarders. Although you feel there is a 50 percent chance you will sell 8 000 of these per year for 10 years (after which time this project is expected to shut down because solar powered skateboards will become more popular), you also recognize that there is a 25 percent chance that you will only sell 3,000 and also a 25 percent chance you will sell 17.000 The gas skateboards would sell for $130 each and have a variable cost of $35 each Regardless of how many you sell the annual fixed costs associated with production would be $100,000. In addition, there would be an initial expenditure of $900,000 associated with the purchase of new production equipment which will be depreciated using the bonus depreciation method in year 1 Because of the number of stores that will need inventory, the working capital requirements are the same regardless of the level of sales. This project will require a one time initial investment of $40,000 in not working capital and working capital investment will be recovered when the project is shut down. Finally, assume that the firm's marginal tax rate is 22 percent a. What is the initial outlay associated with the project? b. What are the annual free cash flows associated with the project for years 1 and 2 through 9 under each sales forecast? What are the expected annual free cash Nows for year 1, and years 2 through 92 c. What is the terminal cash flow in year 10 (that is what is the free cash flow in year 10 plus any additional cash flows associated with the termination of the ( a. What is the initial outlay associated with this project? $ 940.000 (Round to the nearest dollar) b. If you salos forecast is 8.000 skateboards per year what is the free cash flow associated with this propect for year 1? Round to the nearest dollar) (Calculating free cash flows) At present, Solartech Skateboards is considering expanding its product line to include gas powered skateboards, however, it is questionable how well they will be received by skateboarders. Although you feel there is a 50 percent chance you will sell 8,000 of these per year for 10 years (after which time this project is expected to shut down because solar-powered Skateboards will become more popular), you also recognize that there is a 25 percent chance that you will only sell 3.000 and also a 25 percent chance you will sell 17.000 The gas skateboards would sell for $130 each and have a vanable cost of $35 each Regardless of how many you sell the annual fixed costs associated with production would be $160,000. In addition, there would be an initial expenditure of $900,000 associated with the purchase of new production equipment which will be depreciated using the bonus depreciation method in year 1 Because of the number of stores that will need inventory the working capital requirements are the same regardless of the level of sales. This project will require a one-time initial investment of $40,000 in networking capital and working-capital investment will be recovered when the project is shut down. Finally, assume that the firm's marginal tax rate is 22 percent a. What is the initial outly associated with the project? b. What are the annual free cash flows associated with the project for years 1 and 2 through 9 under each sales forecast? What are the expected annual free cash flows for year 1, and years 2 through 99 c. What is the terminal cash flow in year 10 (that is what is the free cash flow in year 10 plus any additional cash flows associated with the termination of the (Calculating free cash flows) Al present, Solartech Skateboards is considering expanding its product line to include gas-powered skateboards, however, it is questionable how well they will be received by skateboarders. Although you feel there is a 50 percent chance you will sell 8 000 of these per year for 10 years (after which time the project is expected to shut down because solar powered skateboards will become more popular), you also recognize that there is a 25 porcent chance that you will only sell 3,000 and also a 25 percent chance you will sell 17.000 The gas skateboards would sell for $130 each and have a variable cost of 535 each Regardless of how many you sell, the annual fixed costs associated with production would be $160,000 In addition, there would be an initial expenditure of $900 000 associated with the purchase of new production equipment which will be depreciated using the bonus depreciation method in year 1 Because of the number of stores that will need inventory the working capital requirements are the same regardless of the level of sales This project will require a one time nitial investment of S40,000 in net working capital and working capital investment will be recovered when the project is shut down Finally, assume that the firm's marginal tax rate is 22 porcent What is the initial outlay associated with the project? b. What are the annual tree cash flows associated with the project for years 1 and 2 through 9 under each sales forecast? What are the expected annual free cash flows for yoar 1, and years 2 through 97 c. What is the terminal cash flow in year 10 (that is what is the free cash flow in year 10 plus any additional cash flows associated with the termination of the G a. What is the initial outlay associated with this project? 5 940,000 (Round to the beatest dollar) b. If your sales forecast is 8,000 skateboards per year, what is the free cash flow associated with this project for year 12 (Round to the nearest dollar)
