Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are the CFO ofSheridan, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store

You are the CFO ofSheridan, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a life of20years. It will generate annual sales of5,900exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operating expenses of running the store, including labor and rent, will amount to50percent of the revenues from the exercise machines. The initial investment in the store will equal $30,900,000and will be fully depreciated on a straight-line basis over the20-year life of the store. Your firm will need to invest $1,500,000in additional working capital immediately, and recover it at the end of the investment. Your firm's marginal tax rate is30percent. The opportunity cost of opening up the store is15.70percent. What are the incremental free cash flows from this project at the beginning of the project as well as in years 1-19 and 20?(Do not round intermediate calculations. Round NPV answer to 2 decimal places, e.g. 5,265.25 and all other answers to the nearest dollar, e.g. 5,265.)

1)Incremental cash flow at the beginning of the project: $

2)Incremental cash flow in the years 1-19: $

3)Incremental cash flow in the year 20: $

4)NPV of the project: $

5) Should you approve it?

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

Principles of Managerial Finance

Authors: Chad J. Zutter, Scott B. Smart

15th edition

013447631X, 134476315, 9780134478197 , 978-0134476315

More Books

Students also viewed these Finance questions