what is the new value of $337500?
Kent Tessman, manager of a Dairy Products Division, was pleased with his division's performance over the past three years. Each year, divisional profits had increased, and he had earned a sizable bonus. (Bonuses are a linear function of the division's reported income.) He had also received considerable attention from higher management. A vice president had told him in confidence that if his performance over the next three years matched his first three, he would be promoted to higher management. Determined to fulfill these expectations, Kent made sure that he personally reviewed every capital budget request. He wanted to be certain that any funds invested would provide good, solid returns. At the moment, he is reviewing two independent requests. Proposal A involves automating a manufacturing operation that is currently labor intensive. Proposal B centers on developing and marketing a new ice cream product. Proposal A requires an initial outlay of $250,000, and Proposal B requires $312,500. Both projects could be funded, given the status of the division's capital budget. Both have an expected life of six years and have the following projected after-tax cash flows: Proposal A Proposal B S150,000 $(37.500) (25.000) 75.000 (12,500) 37.500 25.000 275.000 12.500 337,500 For Project B, at the end of year 6,sold equipment that resulted in a $6000 loss. The cash flow impact of the loss has NOT been factored into the $337,500. The tax rate for the corporation is 21% Year 125.000 1 2 3 4 5 6 212.500 Kent Tessman, manager of a Dairy Products Division, was pleased with his division's performance over the past three years. Each year, divisional profits had increased, and he had earned a sizable bonus. (Bonuses are a linear function of the division's reported income.) He had also received considerable attention from higher management. A vice president had told him in confidence that if his performance over the next three years matched his first three, he would be promoted to higher management. Determined to fulfill these expectations, Kent made sure that he personally reviewed every capital budget request. He wanted to be certain that any funds invested would provide good, solid returns. At the moment, he is reviewing two independent requests. Proposal A involves automating a manufacturing operation that is currently labor intensive. Proposal B centers on developing and marketing a new ice cream product. Proposal A requires an initial outlay of $250,000, and Proposal B requires $312,500. Both projects could be funded, given the status of the division's capital budget. Both have an expected life of six years and have the following projected after-tax cash flows: Proposal A Proposal B S150,000 $(37.500) (25.000) 75.000 (12,500) 37.500 25.000 275.000 12.500 337,500 For Project B, at the end of year 6,sold equipment that resulted in a $6000 loss. The cash flow impact of the loss has NOT been factored into the $337,500. The tax rate for the corporation is 21% Year 125.000 1 2 3 4 5 6 212.500
