Assume a company is considering investing in opening a new store. The following assumptions are made: *Furniture, fixtures, and leasehold improvements will cost $450,000. Company will spend $30,000 to purchase inventory for the grand opening. Company already spent $12,000 in consulting fees. *Company expects to sell 5,000 units each year for the next six years at an average $75 sales price per unit and an average $45 variable cost per unit. Company will incur $70,000 in fixed operating costs each year. *Furniture, fixtures, and leasehold improvements will depreciate on an accelerated basis for tax purposes using a 7-year MACRS asset life. Company expects to switch to a different location six years from now and sell the furniture and fixtures for $65,000 before tax and sell through the remaining inventory. *Company's tax rate will be 32%. What is the incremental free cash flow the investment is expected to generate in year 6 that should be considered for capital budgeting purposes? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar Le. 123456. Do not include commas or a dollar sign with your answer.) (Hint: You will need OCF, net working capital, and capital spending cash flows.)

Assume a company is considering investing in opening a new store. The following assumptions are made: Furniture, fixtures, and leasehold improvements will cost $450,000. Company will spend $30,000 to purchase inventory for the grand opening. Company already spent $12,000 in consulting fees. Company expects to sell 5,000 units each year for the next six years at an average $75 sales price per unit and an average $45 variable cost per unit. Company will incur $70,000 in fixed operating costs each year. Furniture, fixtures, and leasehold improvements will depreciate on an accelerated basis for tax purposes using a 7-year MACRS asset life. Company expects to switch to a different location six years from now and sell the furniture and fixtures for $65,000 before tax and sell through the remaining inventory. Company's tax rate will be 32%. What is the incremental free cash flow the investment is expected to generate in year 6 that should be considered for capital budgeting purposes? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar Le. 123456. Do not include commas or a dollar sign with your answer.) (Hint: You will need OCF, net working capital, and capital spending cash flows.)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...

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