Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Question
Chapter 11, Problem 9SP
a)
Summary Introduction
To determine: The initial outlay related with this project.
b)
Summary Introduction
To determine: The annual
c)
Summary Introduction
To determine: The terminal cash flow in year 5.
d)
Summary Introduction
To determine: The
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(Calculating free cash flows) You are considering new elliptical trainers and you feel you can sell 5.000 of these per year for 5 years (after which time this project is expected to shut
down when it is learned that being fit is unhealthy). The elliptical trainers would sell for $1.000 each and have a variable cost of $500 each. The annual fland costs associated with
production would be $1,300,000 In addition, there would be a $3,000,000 initial expenditure associated with the purchase of new production equipment. It is assumed that this initial
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associated with inventory, and working-capital investment will be recovered when the project is shut down Finally, assume that the firm's marginal tax rate is 25 percant
a. What is the initial outlay associated with this project?
b. What are the annual free cash flows…
Calculating free cash flows) You are considering new elliptical trainers and you feel you can sell 6,000 of these per year for 5 years after which time this project is expected to shut down when it is learned that being fit is unhealthy). The elliptical trainers would sell for $1,000 each and have a variable cost of $500 each. The annual fixed costs associated with production would be $1,300,000. In addition, there would be a $3,000,000 initial expenditure associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the bonus depreciation method in year 1. This project will also require a one-time initial investment of $1,200,000 in net working capital associated with inventory, and working-capital investment will be recovered when the project is shut down. Finally, assume that the firm's marginal tax rate is 25 percent.
What is the initial outlay associated with this project?
What are the annual free cash flows…
You are considering a proposal to produce and market a new sluffing machine. The most likely outcomes for the project are as follows:
Expected sales: 30,000 units per year
Unit price: $50
Variable cost: $30
Fixed cost: $300,000
The project will last for 10 years and requires an initial investment of $1 million, which will be depreciated straight-line over the project
life to a final value of zero. The firm's tax rate is 30%, and the required rate of return is 12%.
However, you recognize that some of these estimates are subject to error. In one scenario a sharp rise in the dollar could cause sales
to fall 30% below expectations for the life of the project and, if that happens, the unit price would probably be only $40. The good
news is that fixed costs could be as low as $200,000, and variable costs would decline in proportion to sales.
a. What is project NPV if all variables are as expected?
Note: Do not round intermediate calculations. Enter your answer in thousands not in millions…
Chapter 11 Solutions
Foundations Of Finance
Ch. 11.A - Prob. 1MCCh. 11.A - Prob. 2MCCh. 11 - Prob. 1RQCh. 11 - Prob. 2RQCh. 11 - If a project requires an additional investment in...Ch. 11 - Prob. 4RQCh. 11 - Prob. 5RQCh. 11 - Prob. 6RQCh. 11 - Prob. 1SPCh. 11 - (Relevant cash flows) Captins Cereal is...
Ch. 11 - Prob. 3SPCh. 11 - Prob. 4SPCh. 11 - Prob. 5SPCh. 11 - Prob. 6SPCh. 11 - Prob. 7SPCh. 11 - Prob. 9SPCh. 11 - Prob. 10SPCh. 11 - Prob. 11SPCh. 11 - Prob. 12SPCh. 11 - Prob. 15SPCh. 11 - (Real options and capital budgeting) You have come...Ch. 11 - (Real options and capital budgeting) Go-Power...Ch. 11 - (Real options and capital budgeting) McDoogals...Ch. 11 - (Risk-adjusted NPV) The Hokie Corporation is...Ch. 11 - (Risk-adjusted discount rates and risk classes)...Ch. 11 - Prob. 1MCCh. 11 - Prob. 2MCCh. 11 - Prob. 3MCCh. 11 - Prob. 7MCCh. 11 - Prob. 8MCCh. 11 - Prob. 9MCCh. 11 - Should the project be accepted? Why or why not?Ch. 11 - Prob. 11MCCh. 11 - Prob. 12MCCh. 11 - Prob. 13MCCh. 11 - Prob. 14MC
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