Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please help with parts a through d (Calculating free cash flows) You are considering new elliptical trainers and you feel you can sell 5000 of

please help with parts a through d image text in transcribed
(Calculating free cash flows) You are considering new elliptical trainers and you feel you can sell 5000 of these per year for 5 years (after which time this project is expected to shut down when it is learned that being fit is unhealthy). The elliptical trainers would sell for $1000 each and have a variable cost of $500 each. The annual fixed costs associated with production would be $1,000,000. In addition, there would be a $5,000,000 initial expenditure associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the simplified straight-line method down to zero over 5 years. This project will also require a one-time initial investment of $1,100,000 in net working capital associated with inventory, and that working capital investment will be recovered when the project is shut down. Finally, assume that the firm's marginal tax rate is 36 percent.
a. What is the initial outlay associated with this project?
b. What are the annual free cash flows associated with this project for years 1 through 4?
c. What is the terminal cash flow in year 5 (that is, what is the free cash flow in year 5 plus any additional cash flows associated with the termination of the project)?
d. What is the project's NPV given a required rate of return of 9 percent?
(cashfws You considering www you feel you can 5.000 per years at which is expect to the whole where the inners wou 1,000 ah and have a ww cost of 1500 a. Theodorucio $1.000.000. there would be a $5.000.000 perture of the chain of ronnistuttaan wie digtheid mod owner or years. This requirement of 51.100.000 working ced with inventory, and that worting capital investment be revered when the projects that down that the grantes pero What is the law with this project . Where to with practor years through we mway fown your states the fresch for you by chowce with mono he project d. of of percent

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

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

Intermediate Accounting 2014 FASB Update

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

15th edition

978-1118938782, 111893878X, 978-1118985311, 1118985311, 978-1118562185, 1118562186, 978-1118147290