Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please include the Excel workbook of the calculations of the free cash flows - The required equipment for the project is expected to cost $1,200,000

Please include the Excel workbook of the calculations of the free cash flows
image text in transcribed
- The required equipment for the project is expected to cost $1,200,000 including shipping and installation costs and have a useful life of 4 years, which is the estimated length of the project. - The equipment will be depreciated using the straight-line method, meaning depreciation will be the same each year. - Inventory is expected to increase $100,000 at the beginning of the project. - The company estimates that it will sell 3,000,000 units in Year 1,2,750,000 units in Year 2,2,700,000 units in Year 3, and 2,250,000 units in Year 4. The company expects to sell the units at $2.50 each. - The company estimates variable costs to be $1.00 each unit in Year 1,$1.25 each unit in Year 2,$1.40 each unit in Year 3 , and $1.65 each unit in Year 4. Fixed costs are estimated to be $1,000,000 each year of the project. - The estimated tax rate is expected to be 25%. - The company is expecting to salvage the equipment for $100,000 at the end of the project. - The company will no longer needed to increased inventory and expects to fully recover the $100,000 at the end of the project. - The finance department estimates the weighted average cost of capital to be 10% based on the risk assessment of the project. Analyze this potential project by first calculating the expected free cash flows for each year of the project (i.e. years 04 ) and then calculate the net present value of the project. Afterward, submit a written report that covers the following information: - Discuss the expected free cash flows for each year of the project. - Discuss the net present value of the project. - Discuss whether you would recommend your company pursue this project. Why or why not? Be sure to justify your position. - Discuss what other factors would be important to consider when evaluating capital budgeting projects

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

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

Investments

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

7th Edition

007331465X, 978-0073314655

More Books

Students also viewed these Finance questions

Question

discuss different sources of numerical data;

Answered: 1 week ago

Question

design and evaluate an effective survey instrument;

Answered: 1 week ago

Question

administer a survey to an appropriate sample of respondents;

Answered: 1 week ago