Calculate the payback period for this project

Assignment Help Financial Management
Reference no: EM131068358

Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried to last longer). Pappy’s paid $138,000 for a marketing survey to determine the viability of the product. It is felt that Potato Pet will generate sales of $593,000 per year. The fixed costs associated with this will be $197,000 per year, and variable costs will amount to 19 percent of sales. The equipment necessary for production of the Potato Pet will cost $656,000 and will be depreciated in a straight-line manner for the four years of the product life (as with all fads, it is felt the sales will end quickly). This is the only initial cost for the production. Pappy’s is in a 30 percent tax bracket and has a required return of 15 percent.

Required:

1. Calculate the Time 0 cash flow for this project.

2. Calculate the annual OCF for this project.

3. Calculate the payback period for this project.

4. Calculate the NPV for this project.

5. Calculate the IRR for this project.

Reference no: EM131068358

Questions Cloud

What is the market price of the bond : A tax-exempt bond was recently issued at an annual 12 percent coupon rate and matures twenty years from today. The par value of the bond is $1,000. If required market rates are 12 percent, what is the market price of the bond? If required market rate..
Present value-interest rate and future value : Solve for the unknown number of years in each of the following
What it the maximum interest rate you could be charged : You are looking to finance your home. The bank is offering a three-year ARM (adjustable-rate mortgage) with an introductory rate of 3.90%. What will your interest rate be after three years if the LIBOR rate does not change? In three years, what it th..
Out of pocket medical expenses : Both Danny and Kaela work at Comcast. They each make $70,000 a year. They also both experience $2,500 a year in out of pocket medical expenses. Each have a 22% tax rate. Danny does not contribute any money to a health care FSA. Kaela contributes $250..
Calculate the payback period for this project : Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried to last longer). Pappy’s paid $138,000 for a marketing survey to determine the viability of the product. It is felt that Potato Pet will generate sales of $593,000 p..
Calculate the fair market value of the equity capital : Suppose a firm’s free cash flows are expected to be $27,157 at the end of the current period and are expected to grow three percent each period thereafter. If the cost of capital is 11.8-percent per period and the market value of debt is $149,621, ca..
Calculate the equity each of these people : Calculate the equity each of these people has in his or her home: Fred just bought a house for $200,000 by putting 10% as a down payment and borrowing the rest from the bank. Freda bought a house for $150,000 in cash, but if she were to sell it now, ..
What is inks after-tax cost of debt capital : Ink Inc. has target capital structure of 10% preferred stock, 50% common equity, and 40% debt. Ink has outstanding 20 year annual, 6% coupon bonds selling for $894. What is Ink’s after-tax cost of debt capital? What is Ink’s cost of preferred stock c..
Well-established supplier of fine percussion instruments : Kelsey Drums, Inc., is a well-established supplier of fine percussion instruments to orchestras all over the United States. The company's class A common stock has paid a dividend of $11 per share per year for the last 17 years. How much total capital..

Reviews

Write a Review

 

Financial Management Questions & Answers

  Point-of-time related values and period-related values

What is the difference between point-of-time related values and period-related values and what do they have in common? Give Practical examples for each.

  What is the conversion value of the bond

KORO Corporation's common stock currently sells for $27.50. Its 8% convertible bonds (issued at par $1000) now sell for $950. The bonds can be converted into 40 shares of common stock. What is the conversion value of the bond?

  What is the expected cost of college in each of four years

A father is now planning a savings program to put his daughter through college. She is 13 and plans to enroll in college in 5 years, and she should graduate 4 years later. What is the expected cost of college in each of the 4 years? How much will nee..

  What would be the percentage change in the bonds price

Price A bond with a $1,000 par value pays a coupon of $40 every six months. The bond has 12 years until maturity and a required return of 8%. Calculate the bond’s price. If the required return suddenly dropped to 6%, what would be the percentage chan..

  What is the key difference between the strategies adopted

Suppose Japanese yen money market annual rate is .60 % and US money market an annual rate of 4.50 %. The predictions on the spot rate in 6 months made by financial analysts X and Y are Yen116/$ and Yen 114/$ respectively. If the sport rate today is Y..

  Calculate the charge necessary to cover cost

Next year Holyspirit healthcare organization will serve 100 patients in the following manner-30 Medicare Patients who pay $850/diagnosis. 25 Medicaid patients who pay $900 per diagnosis. Calculate the charge necessary to cover ABC’s cost

  Exhausts retained earnings and is forced to sell new shares

Precision Steel expects to retain $72,000 of it earnings for the current year which it will use to partially fund new investment opportunities. The optimal capital structure is comprised of 30% debt, 10% preference shares, and 60% ordinary share equi..

  Conservative financing plan instead of more aggressive plan

Hicks Health Clubs, Inc., expects to generate an annual EBIT of $750,000 and needs to obtain financing for $1,200,000 of assets. Their tax bracket is 40%. If the firm goes with a short-term financing plan, their rate will be 7.5 percent, and with a l..

  Prepaid expenses totaling-liabilities

At year’s end your company has cash of $10,500, receivables of $49,900, inventory of $40,200, and prepaid expenses totaling $5,900, Liabilities of $56,500 must be paid next year. A year ago receivables stood at $68,100, and sales for the current year..

  What is the required rate of return on a stock with a beta

Assume that the risk-free rate is 2.5% and the expected return on the market is 8%. What is the required rate of return on a stock with a beta of 1.5?

  Initiated a new corporate strategy

Brash Corporation initiated a new corporate strategy that fixes its annual divedend at $2.25 per share forever. If the risk free rate is 4.5% and the risk premium on Brash's stock is 10.8%, what is the value of Brash's stock?

  Supports state regulation of insurance

The National Association of Insurance Commissioners (NAIC) supports state regulation of insurance. Go to their web site, www.naic.org and click on "States and Jurisdictions."

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd