Question
Suppose Microsoft has decided to introduce a new game playing consoles, the Z Box. Before they launch the Z Box, they conducted an analysis to
Suppose Microsoft has decided to introduce a new game playing consoles, the Z Box. Before they launch the Z Box, they conducted an analysis to see if the Z Box would be a desirable investment. The company estimated that it would sell 2.5 million Z Boxs per year at a price of $800 for the next six years. After the first year of sales, the quantity sold will increase by 3% per year for the remaining life of the project.
The initial capital outlay is determined to be $1.9 billion and a $800 million outlay in net working capital (NWC) would also be required. Assume that there is a one-time investment in NWC and that this will be recovered at the end of the project.
Assume that the equipment used will be depreciated using the MACRS 7 year schedule and that the equipment has a salvage value of zero. At the end of year 6, the equipment will be sold for its book value. Also, assume that that the tax rate is 21%. Using information from Microsofts financial statements (you may want to use Morningstar.com or some other online site) estimate the operating cash flows from the project. Make any simplifying assumptions that are necessary to produce the estimate.
PLEASE PROVIDE FORMULAS ON HOW TO GET EACH NUMBER
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started