Techneeco, Inc is considering producing and selling a new product Techneeco will evaluate the economic feasibility of pursuing the new product using the net present value approach The production line for the new product will cost $600,000 and installation and related costs will be $200,000 The new equipment is expected to have 4 year life and at the end of its useful life to Techneeco the equipment will have a residual value of $60,000 If it undertakes the project, Techneeco will finance it with a 4 year loan for the full $800,000 Techneeco's weighted average cost of capital is 8 The prime rate of interest is 6 Techneeco's tax rate is 30 Techneeco has developed estimates of revenues and expenses for each of the four years of the production line life Those estimates are provided at the Proposed New Product Estimates tab All estimated revenues will be on a cash basis and all estimated expenses are expect to be paid during the period incurred Management has asked that you provide the following information concerning the proposed new product A1 lock copy cut paste A B 1 1 In carrying out the net present value analysis of its project, what amount should Techneeco use as the present value of project cash inflows 123 2 2 In carrying out the net present value analysis of its project, what amount should Techneeco use as the present value of project cash outflows 123 3 3 Based on a net present value evaluation, is Techneeco's proposed project economically feasible Yes No 4 4 Independent of your answers above, ASSUME the net present value of the proposed project is $90,000 If Techneeco is to compare the proposed new product project with other projects, using net present value of the project, what is the profitability index for the proposed new product project PI (Show as X XXX, for example 0 123) 123 Proposed New Product Estimates Estimated Estimated Total Expenses Estimated Year Revenues (including Depreciation Depreciation Expense 1 $ 250,000 $ 150,000 $ 40,000 2 500,000 275,000 75,000 3 500,000 250,000 70,000 4 350,000 210,000 65,000 Total $1,600,000 $ 885,000 $ 250,000 All sales will be on a cash basis and all expenses are expect to be paid during the period incurred

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jun 03, 2024

Techneeco, Inc. is considering producing and selling a new product. Techneeco will evaluate the economic feasibility of pursuing the new product using the net present

Techneeco, Inc. is considering producing and selling a new product. Techneeco will evaluate the economic feasibility of pursuing the new product using the net present value approach.

The production line for the new product will cost $600,000 and installation and related costs will be $200,000. The new equipment is expected to have 4-year life and at the end of its useful life to Techneeco the equipment will have a residual value of $60,000.

If it undertakes the project, Techneeco will finance it with a 4-year loan for the full $800,000. Techneeco's weighted average cost of capital is 8%. The prime rate of interest is 6%.

Techneeco's tax rate is 30%.

Techneeco has developed estimates of revenues and expenses for each of the four years of the production line life. Those estimates are provided at the Proposed New Product Estimates tab. All estimated revenues will be on a cash basis and all estimated expenses are expect to be paid during the period incurred.

Management has asked that you provide the following information concerning the proposed new product:

lock

copy

cut

paste

1. In carrying out the net present value analysis of its project, what amount should Techneeco use as the present value of project cash inflows?

123

2. In carrying out the net present value analysis of its project, what amount should Techneeco use as the present value of project cash outflows?

123

3. Based on a net present value evaluation, is Techneeco's proposed project economically feasible?

Yes No

4. Independent of your answers above, ASSUME the net present value of the proposed project is $90,000. If Techneeco is to compare the proposed new product project with other projects, using net present value of the project, what is the profitability index for the proposed new product project? PI = (Show as X.XXX, for example 0.123)

123

Proposed New Product Estimates Estimated Estimated Total Expenses Estimated Year Revenues (including Depreciation Depreciation Expense 1 $ 250,000 $ 150,000 $ 40,000 2 500,000 275,000 75,000 3 500,000 250,000 70,000 4 350,000 210,000 65,000 Total $1,600,000 $ 885,000 $ 250,000 All sales will be on a cash basis and all expenses are expect to be paid during the period incurred.