You are the CFO of Sunland, Inc., a retailer of the exercise machine Sunland6 and related accessories. Your firm is considering opening a new store in Los Angeles. The store will have a life of 20 years. It will generate annual sales of 4,800 exercise machines, and the price of each machine is $2,400. The annual sales of accessories will be $576,000, and the operating expenses of running the store, includin labor and rent, will amount to 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $29,300,000 and will be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $1,000,000 in additional working capital immediately and recover it at the end of the investment. Your firm's marginal tax rate is 30 percent. The opportunity cost of opening up the store is 11.80 percent. 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. 5,275.25 and all other answers to 0 decimal places, e.g. 5,275.) Incremental cash flow at the beginning of the project $ Incremental cash flow in the years 1-19 Incremental cash flow in the year 20 $ tA $ 30,300,000 i
You are the CFO of Sunland, Inc., a retailer of the exercise machine Sunland6 and related accessories. Your firm is considering opening a new store in Los Angeles. The store will have a life of 20 years. It will generate annual sales of 4,800 exercise machines, and the price of each machine is $2,400. The annual sales of accessories will be $576,000, and the operating expenses of running the store, includin labor and rent, will amount to 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $29,300,000 and will be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $1,000,000 in additional working capital immediately and recover it at the end of the investment. Your firm's marginal tax rate is 30 percent. The opportunity cost of opening up the store is 11.80 percent. 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. 5,275.25 and all other answers to 0 decimal places, e.g. 5,275.) Incremental cash flow at the beginning of the project $ Incremental cash flow in the years 1-19 Incremental cash flow in the year 20 $ tA $ 30,300,000 i
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:You are the CFO of Sunland, Inc., a retailer of the exercise machine Sunland6 and related accessories. Your firm is considering opening
a new store in Los Angeles. The store will have a life of 20 years. It will generate annual sales of 4,800 exercise machines, and the price
of each machine is $2,400. The annual sales of accessories will be $576,000, and the operating expenses of running the store, including
labor and rent, will amount to 50 percent of the revenues from the exercise machines. The initial investment in the store will equal
$29,300,000 and will be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest
$1,000,000 in additional working capital immediately and recover it at the end of the investment. Your firm's marginal tax rate is 30
percent. The opportunity cost of opening up the store is 11.80 percent.
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. 5,275.25 and all other answers to O decimal places, e.g. 5,275.)
Incremental cash flow at the beginning of the project
Incremental cash flow in the years 1-19
Incremental cash flow in the year 20
NPV of the project
$
$
$
$
30,300,000 i
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