Question 1 Not yet answered Marked out of 25.00 P Flag question UM Corporation plans to produce boxes. It can go into production for an initial investment in equipment of $9m (m-million. The equipment will be depreciated straight-line over 3 years to a salvage value of zero. UM assumes that the equipment has no salvage value when allocating the depreciation expenses but later find out that the equipment can be sold for $2m at the end of year 4. UM also needs to spend 0,2m to uninstall and clear up the equipment in year 4. The firm's working capital policy is as follow: give out 3 months credit to her clients and fill maintained inventory at a level of 20% of next year's forecast sales. The firm estimates production costs (expenses) equal to $2/unit and believes that the box can be sold for S6 each. The project will come to an end at the end of year 3, when the box becomes obsolete in style. The tax rate of the firm is 40% and the required rate of return on the project is 10%. Sales forecasts are [in million im of unit: Im units, 1.2m units and 1.5m units for years 1 to 3 respectively. [Note: Show all detail calculations and use two decimal points for percentage for numeric) in computations and answers.) (al (7%) What are the cash flows generated from operating (OCFs) for each year (yrs. to 4/7 Present the figures in a profit and loss table (same as your assignment) (1) (4%) What are the (0 total working capital, (l) change in working capital and (ii) the cash flows generated from change in working capital for each year (years 0 to 4/7 tem What are the cash flows for UM in year 4 generated from the sales of equipment and project and clearing expenses? Briefly explain why you need for do not need to pay tax for the $2m equipment sales at year 4 (d) (4%) What are the total cash flows generated from operating cash flows, change in working capital, initial investments and ending expenses for each year (years 0 to 472 e) (590) What is the project's NPV? Should the firm accept/reject the project? Why? Question 1 Not yet answered Marked out of 25.00 P Flag question UM Corporation plans to produce boxes. It can go into production for an initial investment in equipment of $9m (m-million. The equipment will be depreciated straight-line over 3 years to a salvage value of zero. UM assumes that the equipment has no salvage value when allocating the depreciation expenses but later find out that the equipment can be sold for $2m at the end of year 4. UM also needs to spend 0,2m to uninstall and clear up the equipment in year 4. The firm's working capital policy is as follow: give out 3 months credit to her clients and fill maintained inventory at a level of 20% of next year's forecast sales. The firm estimates production costs (expenses) equal to $2/unit and believes that the box can be sold for S6 each. The project will come to an end at the end of year 3, when the box becomes obsolete in style. The tax rate of the firm is 40% and the required rate of return on the project is 10%. Sales forecasts are [in million im of unit: Im units, 1.2m units and 1.5m units for years 1 to 3 respectively. [Note: Show all detail calculations and use two decimal points for percentage for numeric) in computations and answers.) (al (7%) What are the cash flows generated from operating (OCFs) for each year (yrs. to 4/7 Present the figures in a profit and loss table (same as your assignment) (1) (4%) What are the (0 total working capital, (l) change in working capital and (ii) the cash flows generated from change in working capital for each year (years 0 to 4/7 tem What are the cash flows for UM in year 4 generated from the sales of equipment and project and clearing expenses? Briefly explain why you need for do not need to pay tax for the $2m equipment sales at year 4 (d) (4%) What are the total cash flows generated from operating cash flows, change in working capital, initial investments and ending expenses for each year (years 0 to 472 e) (590) What is the project's NPV? Should the firm accept/reject the project? Why
