EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 9, Problem 16P
Summary Introduction

To determine: The net investment and net cash flow.

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Ralph’s Bow Works (RBW) is planning to add a new line of bow ties that will require the acquisition of a new knitting and tying machine. The machine will cost $1.3 million. It is classified as a 7-year MACRS asset and will be depreciated as such. Interest costs associated with financing the equipment purchase are estimated to be $50,000 per year. The expected salvage value of the machine at the end of 10 years is $80,000. The decision to add the new line of bow ties will require additional net working capital of $55,000 immediately, $30,000 at the end of year 1, and $10,000 at the end of year 2. RBW expects to sell $370,000 worth of the bow ties during each of the 10 years of product life. RBW expects the sales of its other ties to decline by $23,000 (in year 1) as a result of adding this new line of ties. The lost sales level will remain constant at $23,000 over the 10-year life of the proposed project. The cost of producing and selling the ties is estimated to be $70,000 per year.…
Ralph’s Bow Works (RBW) is planning to add a new line of bow ties that will require the acquisition of a new knitting and tying machine. The machine will cost $1.4 million. It is classified as a 7-year MACRS asset and will be depreciated as such. Interest costs associated with financing the equipment purchase are estimated to be $45,000 per year. The expected salvage value of the machine at the end of 10 years is $90,000. The decision to add the new line of bow ties will require additional net working capital of $40,000 immediately, $15,000 at the end of year 1, and $10,000 at the end of year 2. RBW expects to sell $350,000 worth of the bow ties during each of the 10 years of product life. RBW expects the sales of its other ties to decline by $25,000 (in year 1) as a result of adding this new line of ties. The lost sales level will remain constant at $25,000 over the 10-year life of the proposed project. The cost of producing and selling the ties is estimated to be $70,000 per year.…
Ralph's Bow Works (RBW) is planning to add a new line of bow ties that will require the acquisition of a new knitting and tying machine. The machine will cost $1.8 million. It is classified as a 7-year MACRS asset and will be depreciated as such. Interest costs associated with financing the equipment purchase are estimated to be $30,000 per year. The expected salvage value of the machine at the end of 15 years is $60,000. The decision to add the new line of bow ties will require additional net working capital of $45,000 immediately, $15,000 at the end of year 1, and $15,000 at the end of year 2. RBW expects to sell $280,000 worth of the bow ties during each of the 15 years of product life. RBW expects the sales of its other ties to decline by $15,000 (in year 1) as a result of adding this new line of ties. The lost sales level will remain constant at $15,000 over the 15-year life of the proposed project. The cost of producing and selling the ties is estimated to be $40,000 per year.…
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