Sales price pe Variable cost Annual fixed Working-capi 200,000 to ge apital will be vestment in v ears 3 througl e project at the e depreciatio
Sales price pe Variable cost Annual fixed Working-capi 200,000 to ge apital will be vestment in v ears 3 througl e project at the e depreciatio
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows
Section: Chapter Questions
Problem 23SP: Start with the partial model in the file Ch10 P23 Build a Model.xlsx on the textbooks Web site....
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Transcribed Image Text:dgeting
Sales price per unit: $300/unit in Years 1–4, $250/unit in Year 5
Variable cost per unit: $200/unit
Annual fixed costs: $950,000
Working-capital requirements: There will be an initial working-capital requirement of
$200,000 to get production started. For each year, the total investment in net working
capital will be equal to 10 percent of the dollar value of sales for that year. Thus, the
investment in working capital will increase during Years 1 and 2 and then decrease in
Years 3 through 5. Finally, all working capital will be liquidated at the termination of
the project at the end of Year 5.
The depreciation method: Use the simplified straight-line method over five years. It s
assumed that the plant and equipment will have no salvage value after five years.
12-23. (Calculating cash flows in a
Cor-
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Imucme be purchased?
don UI uiC project)!
1222. (Calculating project cash flows, NPV, profitability index, and internal rate of return in a
comprehensive problem) (Related to Checkpoint 12.1 on page 410) Traid Winds
Corporation, a firm in the
quired rate of return or discount rate, is considering a new project that involves the
introduction of a new product. This project is expected to last five years, and then,
because this is somewhat of a fad project, it will be terminated. Given the follow-
ing information, determine the net cash flows associated with the project and the
project's NPV, profitability index, and internal rate of return. Apply the appropri-
ate decision criteria.
percent marginal tax bracket with a 15 percent re-
Cost of new plant and equipment:
Shipping and installation costs:
$26,800,000
$ 200,000
Unit sales:
Year
Units Sold
65,000
125,000
120,000
80,000
70,000
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