Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The answer should include the relevant formula or equation and the final numbers You must analyze a potential new producta caulking compound that Cory Materials'
The answer should include the relevant formula or equation and the final numbers
You must analyze a potential new producta caulking compound that Cory Materials' R&D people developed for use in the residential construction industry. Cory's marketing manager thinks the company can sell 115,000 tubes per year for 3 years at a price of $3.25 each, after which the product will be obsolete. The required equipment would cost $150,000, plus another $15,000 for shipping and installation. Current assets (receivables and inventories) would increase by $35,000, while current liabilities (accounts payable and accruals) would rise by $15,000. Variable costs would be 60% of sales revenues, fixed costs (exclusive of depreciation) would be $70,000 per year, and fixed assets would be depreciated using the straight line method. When production ceases after 3 years, the equipment is expected to have no market value. Cory's tax rate is 40%, and it uses a 10% WACC for average-risk projects. Find the required Year O investment and the project's annual net cash flows. Then calculate the project's NPV, IRR, MIRR, and payback. Assume at this point that the project is of average riskStep 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