You are evaluating a project for a superior pickleball paddle. You estimate the sales price to be $200 per unit and sales volume to be 1,000 units in year 1; 1,200 units in year 2; and 1,100 units in year 3. The project has a three-year life. Variable costs amount to $50 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000 in assets, which will be depreciated using bonus depreciation. The actual market value of these assets at the end of year 3 is expected to be $20,000. NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. If the company invests in the project, it plans to increase dividends by $10,000 each year. The tax rate is 21 percent and the required return on the project is 10 percent. Prepare a schedule of project cash flows by year. Clearly label the rows showing EBIT, OCF and Free (Total) Cash Flows. Compute the project's NPV and IRR. Do you recommend accepting or rejecting the project?
You are evaluating a project for a superior pickleball paddle. You estimate the sales price to be $200 per unit and sales volume to be 1,000 units in year 1; 1,200 units in year 2; and 1,100 units in year 3. The project has a three-year life. Variable costs amount to $50 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000 in assets, which will be depreciated using bonus depreciation. The actual market value of these assets at the end of year 3 is expected to be $20,000. NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. If the company invests in the project, it plans to increase dividends by $10,000 each year. The tax rate is 21 percent and the required return on the project is 10 percent. Prepare a schedule of project cash flows by year. Clearly label the rows showing EBIT, OCF and Free (Total) Cash Flows. Compute the project's NPV and IRR. Do you recommend accepting or rejecting the project?
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 4CE: Manzer Enterprises is considering two independent investments: A new automated materials handling...
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You are evaluating a project for a superior pickleball paddle. You estimate the sales price to be $200 per unit and sales volume to be 1,000 units in year 1; 1,200 units in year 2; and 1,100 units in year 3. The project has a three-year life. Variable costs amount to $50 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000 in assets, which will be
- Prepare a schedule of project cash flows by year. Clearly label the rows showing EBIT, OCF and
Free (Total) Cash Flows. - Compute the project's
NPV andIRR . Do you recommend accepting or rejecting the project?
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