Question
You are the CFO of Baby Enterprises. You are considering a four-year project that requires an initial investment of $525,000 in a baby machinery that
You are the CFO of Baby Enterprises. You are considering a four-year project that requires an initial investment of $525,000 in a baby machinery that will be fully deprecated in a straight line over the 4 years. The machinery has no salvage value. You believe that you can sell 82,000 units at a price of $45 per unit. The units have a variable cost of $30 and fixed costs of $220,000 annually. The tax rate of Baby enterprise is 23% and your cost of capital is 8%. The CEO is concerned with the Sales departments projections and would like to know how sensitive Operating Cash Flow is to sales.
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