Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please see attached! I am having trouble with some of these questions. 1. CALCULATING PROJECT INCREMENTAL CASH FLOWS AND NPV: Atlantic Manufacturing is considering a

Please see attached! I am having trouble with some of these questions.

image text in transcribed 1. CALCULATING PROJECT INCREMENTAL CASH FLOWS AND NPV: Atlantic Manufacturing is considering a new investment project that will last for four years. The delivered and installed cost of the machine needed for the project is $23620 and it will be depreciated according to the three-year MACRS schedule. The project also requires an initial increase in net working capital of $292. Financial projections for sales and costs are in the table below. In addition, since sales are expected to fluctuate, NWC requirements will also fluctuate. The end-of-year NWC requirements are included below (hint: these NWC capital requirements DO NOT represent the change in NWC for the period, they represent the end-of-year balance. You must calculate the change in NWC for each period). The $0 requirement for NWC at the end of year 4 means that all NWC is recovered by the end of the project The corporate tax rate is 35% and the required return on the project is 12%. Year 1 2 3 4 Sales $11065 $12973 $13324 $10870 Costs 2023 2573 3005 1386 NWC Requirements 323 358 232 0 What is the incremental net income of the project for each year? (Round answers to 2 decimal places, round intermediate calculations to 5 decimal places) What are the incremental cash flows of the project for each year? (Round answers to 2 decimal places, round intermediate calculations to 5 decimal places. When using previous answers, use the rounded answer as it was given in the answer box) What is the project's NPV? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places. When using previous answers, use the rounded answer as it was given in the answer box) Net Income Year 1 Net Income Year 2 Net Income Year 3 Net Income Year 4 Cash Flow Year 0 Cash Flow Year 1 - Cash Flow Year 2 Cash Flow Year 3 Cash Flow Year 4 NPV - 2. CALCULATING EAC: You are evaluating two different milling machines to replace your current aging machine. Machine A costs $255000, has a three-year life, and has pretax operating costs of $65219 per year. Machine B costs $435000, has a five-year life, and has pretax operating costs of $33348 per year. For both milling machines, use straight-line depreciation to zero over the project's life and assume a salvage value of $42240. Your tax rate is 34 % and your discount rate is 10 %. What is the EAC for Machine A? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places) What is the EAC for Machine B? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places) 3. CALCULATING AND COMPARING NPV AND EAC: Renegade Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2.85 million and will last for six years. Variable costs are 30 % of sales, and fixed costs are $2000000 per year. Machine B costs $4.92 million and will last for nine years. Variable costs for this machine are 25 % of sales and fixed costs are $1300000 per year. The sales for each machine will be $10 million per year. The required return is 9 %, and the tax rate is 38%. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis. Calculate the NPV for each machine. (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places) Calculate the EAC for each machine. (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places) 4. INCREMENTAL CASH FLOWS: Your firm is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $5 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $4.7 million. The company wants to build its new manufacturing plant on this land; the plant will cost $11.5 million to build, and the site requires $720000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? 5. INCREMENTAL CASH FLOWS: Winnebagel Corp. currently sells 25000 motor homes per year at $70000 each and 13000 luxury motor coaches per year at $104000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 15000 of these campers per year at $14000 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 2,400 units per year and reduce the sales of its motor coaches by 1,100 units per year. What is the amount to use as the annual sales figure when evaluating this 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

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

Multinational Financial Management

Authors: Alan C Shapiro, Paul Hanouna

11th Edition

1119559901, 9781119559900

More Books

Students also viewed these Finance questions

Question

need it asap, thank you!

Answered: 1 week ago

Question

How easy the information is to remember

Answered: 1 week ago

Question

The personal characteristics of the sender

Answered: 1 week ago