Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

PLEASE FULLY ANSWER ALL PARTS. IM SORRY BUT I AM STILL CONFUSED AND CHEGG EXPERTS ARE JUST NOT HELPING. IF YOU CAN'T SOLVE EVERYTHING

PLEASE FULLY ANSWER ALL PARTS. IM SORRY BUT I AM STILL CONFUSED AND CHEGG " EXPERTS" ARE JUST NOT HELPING. IF YOU CAN'T SOLVE EVERYTHING PLEASE DON'T ATTEMPT.
Arnold Inc. is considering a proposal to manufacture high-end protein bars used as food supplements by body builders. The project requires use of an existing warehouse, which the firm acquired three years ago for $1 million and which it currently rents out for $125,000. Rental rates are not expected to change going forward. In addition to using the warehouse, the project requires an upfront investment into machines and other equipment of $1.4 million. This investment can be fully depreciated straight-line over the next 10 years for tax purposes. However, Arold Inc. expects to terminate the project at the end of eight years and to sell the machines and equipment for $493,000. Finally, the project requires an initial investment into net working capital equal to 10% of predicted first-year sales. Subsequently, net working capital is 10% of the predicted sales over the following year. Sales of protein bars are expected to be $4.6 million in the first year and to stay constant for eight years. Total manufacturing costs and operating expenses (excluding depreciation) are 80% of sales, and profits are taxed at 30%.
What are the free cash flows of the project?
- The FCF of year 0 is $ million?
- The FCF of years 1-7 is $ million?
- The FCF of year 8 is $ million?
If the cost of capital is 15%, what is the NPV of the project?

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_2

Step: 3

blur-text-image_3

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

Investments

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

7th Edition

007331465X, 978-0073314655

More Books

Students also viewed these Finance questions

Question

Are your goals SMART?

Answered: 1 week ago