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Please help in calculating the cash flow, thank you. Exercise-Cash flow estimation. (25%) Hotel Tropical is planning to acquire new equipment for a cost of
Please help in calculating the cash flow, thank you.
Exercise-Cash flow estimation. (25%) Hotel Tropical is planning to acquire new equipment for a cost of S1,100,000. The management has already conducted and paid $15,000 for a marketing survey while delivery and installation costs are expected to be $20,000 and $45,000, respectively. The economic life of the investment is 5 years and the new equipment will be depreciated straight-line to a zero value over 7 years. The management team expects to sell this new equipment at the end of 5 years at a price of $180,000. 2. Hotel Tropical expects the acquisition to increase sales by S190,000 annually while cash operating costs are not expected to increase. This investment will allow the replacement of old equipment which can be salvaged for $90,000 and has a book value of $110,000. The remaining depreciation on the old equipment is $55,000 annually for two more years. The marginal tax rate is 20%. Additional net working capital of $90,000 will be needed immediately. When the project is terminated in 5 years, there no longer will be a need for this incremental working capital a) Calculate the net investment. (Calculate to two decimal places) b) Compute the net cash flow for the first, third and final years of the project. (Calculate to two decimal places) c) Should the project be accepted? Briefly explain yourStep by Step Solution
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