Question
Starbucks is discussing a new project amongst their management team. They are considering a project where they will sell to the public the coffee makers
Starbucks is discussing a new project amongst their management team. They are considering a project where they will sell to the public the coffee makers that they use in their stores. This way customers can brew their Starbucks coffees at home and not have to worry about going inside the restaurant and being exposed to other people.
The chief marketing officer (CMO) estimates that they will sell 3,000 units a year for 5 years at a price of $195 each.
The chief operations officer (COO) estimates that the variable costs to build these will be 75% of revenue. The COO says the company will need to buy an assembly line to make these. The assembly line costs $575,000 and has a shipping cost of $25,000. The COO adds that they will need to purchase an additional $40,000 in inventory and accounts payable will increase by $9,500. Once the project ends, they will no longer need additional inventory and will pay the accounts payable balance.
The chief financial officer (CFO) The CFO says to use the MACRS 3 year class for depreciation. (These are the same rates as used in the slides.) He estimates that the assembly line will have a salvage value of $25,000. He notes that Starbucks tax rate is 24% and that the normal WACC is 7.2%.
The CMO notes that they have done an extensive marketing survey and many Starbucks customers are scared to go to a store in todays environment and would be happy to purchase their own equipment. This research is already paid for and cost $55,000.
QUESTION 8
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Use the data provided for Starbuck's and their proposed project to answer this question.
What are the tax expenses in year 3 of this project?
A. $13,500
B. $23,785
C. $39,563
D. $52,000
QUESTION 9
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Use the data provided for Starbuck's and their proposed project to answer this question.
What are the operating cash flows in year 4? (This is the EBIT (1-T) + Dep. Ex)
A. $97,650
B. $102,678
C. $121,230
D. $181,860
QUESTION 10
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Use the data provided for Starbuck's and their proposed project to answer this question.
What is the after tax salvage value?
A. $19,000
B. $25,800
C. $38,000
D. $45,800
QUESTION 11
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Use the data provided for Starbuck's and their proposed project to answer this question.
What are the terminal cash flows?
A. $48,800
B. $49,500
C. $53,000
D. $61,800
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Fundamentals Of Financial Management
Authors: James C. Van Horne
10th Edition
0138596875, 978-0138596873
