Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The Baldwin Company investigated the marketing potential of brightly colored bowling balls. Some people at Baldwin complained about the cost of the test marketing, which

The Baldwin Company investigated the marketing potential of brightly colored bowling balls. Some people at Baldwin complained about the cost of the test marketing, which was $250,000. In any case, the Baldwin company is now considering investing in a machine to produce bowling balls. The bowling balls would be manufactured in a building owned by the firm and located near Los Angeles. This building, which is vacant, and the land can be sold for $150,000 after taxes. Working with his staff, Meadows is preparing an analysis of the proposed new product. He summarized his assumptions as follows: the cost of the bowling ball machine is $100,000 and it is expected to last five years (use the straight line depreciation). At the end of five years, the machine will be sold at a price estimated to be $30,000. Production by year during the fiveyear life of the machine is expected to be as follows: 5,000 units, 8,000 units, 12,000 units, 10,000 units, 6,000 units. The price of bowling balls will be $20. Production cost will be $10 dollars per unit. The appropriate incremental corporate tax rate is 34%. Management and determines that an initial investment (at year 0) in net working capital of $10,000 is required. Subsequently, net working capital at the beginning of each year will be equal to 10% of sales for that year. In the final year of the project, net working capital would decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the projects life The Baldwin Company investigated the marketing potential of brightly colored bowling balls. Some people at Baldwin complained about the cost of the test marketing, which was $250,000. In any case, the Baldwin company is now considering investing in a machine to produce bowling balls. The bowling balls would be manufactured in a building owned by the firm and located near Los Angeles. This building, which is vacant, and the land can be sold for $150,000 after taxes. Working with his staff, Meadows is preparing an analysis of the proposed new product. He summarized his assumptions as follows: the cost of the bowling ball machine is $100,000 and it is expected to last five years (use the straight line depreciation). At the end of five years, the machine will be sold at a price estimated to be $30,000. Production by year during the fiveyear life of the machine is expected to be as follows: 5,000 units, 8,000 units, 12,000 units, 10,000 units, 6,000 units. The price of bowling balls will be $20. Production cost will be $10 dollars per unit. The appropriate incremental corporate tax rate is 34%. Management and determines that an initial investment (at year 0) in net working capital of $10,000 is required. Subsequently, net working capital at the beginning of each year will be equal to 10% of sales for that year. In the final year of the project, net working capital would decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the projects life he Baldwin Company investigated the marketing potential of brightly colored bowling balls. Some people at Baldwin complained about the cost of the test marketing, which was $250,000. In any case, the Baldwin company is now considering investing in a machine to produce bowling balls. The bowling balls would be manufactured in a building owned by the firm and located near Los Angeles. This building, which is vacant, and the land can be sold for $150,000 after taxes. Working with his staff, Meadows is preparing an analysis of the proposed new product. He summarized his assumptions as follows: the cost of the bowling ball machine is $100,000 and it is expected to last five years (use the straight line depreciation). At the end of five years, the machine will be sold at a price estimated to be $30,000. Production by year during the fiveyear life of the machine is expected to be as follows: 5,000 units, 8,000 units, 12,000 units, 10,000 units, 6,000 units. The price of bowling balls will be $20. Production cost will be $10 dollars per unit. The appropriate incremental corporate tax rate is 34%. Management and determines that an initial investment (at year 0) in net working capital of $10,000 is required. Subsequently, net working capital at the beginning of each year will be equal to 10% of sales for that year. In the final year of the project, net working capital would decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the projects life. The GIANT Company investigated the marketing potential of dark colored plane wings. people at GIANT complained about the cost of the test marketing, which was $250,000.In any case, the GIANT company is now considering investing in a machine to produce dark wings. The dark wings would be manufactured in a building owned by the firm and located near NEWORLEANS This building, which is vacant, and the land can be sold for $1,500,000 after taxes .Working with his staff, Meadows is preparing an analysis of the proposed new product. He summarized his assumptions as follows: the cost of the wing machine is $1,000,000 and it is expected to last seven years (use the MACRS depreciation). At the end of seven years, the machine will be sold at a price estimated to be $300,000. Production by year during the sevenyear life of the machine is expected to be as follows: 500 units, 800 units, 1200 units, 100 units, 600units.,200units ,50 units The price of wing will be $2000. Production cost will be $1000 dollars per unit. The appropriate incremental corporate tax rate is 35%.Management and determines that an initial investment (at year 0) in net working capital of$10,000 is required. Subsequently, net working capital at the beginning of each year will be equal to10% of sales for that year. In the final year of the project, net working capital would decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the projects life .If discount rate IS 13.5% USING THE EXCEL CALCULATE THE INITIAL INVESTMENT CALCULATE THE PERATING CASH FLOW CALCULATE THE TERMINAL VALUE Calculate the NPV Profitability index Pay pack period

please solve as soon as possible , i'll give thumbs up!

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Oxford Handbook Of IPOs

Authors: Douglas Cumming, Sofia Johan

1st Edition

0190614579, 978-0190614577

More Books

Students also viewed these Finance questions