Calculating free cash flows

Assignment Help Financial Management
Reference no: EM13814038

Calculating free cash flows) Double meat Palace is considering a new plant for a temporary customer, and its finance department has determined the following characteristics. The company owns much of the plant and equipment to be used for the product. This equipment was originally purchased for $90,000; however, if the project is not undertaken, this equipment will be sold for $50,000 after taxes; in addition, if the project is not accepted, the plant used for the project could be sold for $105,000 after taxes—the plant originally cost $40,000. The rest of the equipment will need to be purchased at a cost of $150,000. This new equipment will be depreciated by the straight line method over the project’s 3-year life, after which it will have zero salvage value. No change in net operating working capital would be required, and management expects revenues resulting from this new project to be $234,000 per year for 3 years, while increased operating expenses, excluding depreciation, are expected to be $82,000 per year over the project’s 3-year life. The average tax rate is 25 percent and the marginal tax rate is 30 percent. The required rate of return for this project is 8 percent. What is the project’s NPV ?

Reference no: EM13814038

Questions Cloud

Consider the following hypothesis test : A sample of 100 yields x ¯ = 24. The population standard deviation is 12. If a = .05, find the acceptance/rejection region H_0 and determine if you accept or reject the hypothesis H_0 (Draw graph!).
Make sure the products they produce are safe : Pharmaceutical companies perform tests to make sure the products they produce are safe. One test is to make sure that the drugs has 100% potency, so the mean is 100%. Let's say for a particular tablet product that the production process has a populat..
Prepare a cash budget for sharpe covering : Of Sharpe's sales, 10 percent is for cash, another 60 percent is collected in the month following the sales, and 30 percent is collected in the second month following sales. November and December sales for 2010 were $220,000 and $175,000 respectively..
Low-end roadmaster tire brand with anew advertising : Firebrick Tire Company wants to increase sales of its long running, low-end Roadmaster Tire brand with anew advertising campaign promoting they will last at least 28,000 miles [Mu=28,000 miles].  Tests with arandom sample [n=30 tires] show a sample m..
Calculating free cash flows : Calculating free cash flows) Double meat Palace is considering a new plant for a temporary customer, and its finance department has determined the following characteristics. The company owns much of the plant and equipment to be used for the product.
The average number of days absent per term : A random sample of [n=64 children] of working mothers showed that they were absent from school a sample average of [x=5.3] days per term, with a standard deviation [s=1.8 days].  Provide a 96% confidence interval for the average number of days absent..
What are the expected values for each alternative : What are the expected values for each alternative? What decision should be made under expected value? What is the EVPI?
Firm to finance unemployment insurance benefits : Choose one of the three pilot programs proposed by Kugler in the Hamilton Project policy brief reading. Do you think it will make a positive impact or not? Why? How do you think it will affect the taxes paid by your firm to finance unemployment insur..
What differentiates the two formulas : What differentiates the two formulas Σ (x - xbar)^2/n-1 from Σ (x - µ)^2/n, and why the difference?

Reviews

Write a Review

 

Financial Management Questions & Answers

  Down payment-bonuses and discount rate

You will receive 2,500 in bonuses each year for the next three years (at the end of each year). You are hoping to use these bonuses for a car down payment in about ten years. At a 7.79% discount rate, how much will you have saved? (Round to two decim..

  Lender actually charging on the repayment agreement

Bill Farmer has had some financial problems and cannot pay the $200,000 loan that is due next week (i.e. now). Bill's lender agrees to accept 5 annual payments of $46,000 each for the next 5 years instead, with the first payment due one year from now..

  The effective cost of borrowing in this case

Your firm has an average collection period of 39 days. Current practice is to factor all receivables immediately at a 2.00 percent discount. What is the effective cost of borrowing in this case?

  Describe the basic characteristics of currency hedging tools

Describe the basic characteristics of currency hedging tools: forwards, futures, swaps, options and more complex options (caps, floors, collars), as well as “natural hedges” on a corporation’s balance sheet.

  Assume that the yield to maturity remains constant

A bond has a $1,000 par value, 10 years to maturity, and a 8% annual coupon and sells for $980. Yield to Maturity is 8.30213. Assume that the yield to maturity remains constant for the next 4 years. What will the price be 4 years from today?

  What is the value of the stock ex rights

Knight Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take three rights to buy a new share in the offering at a subscription price of $50. At the close of business the day before the ex-rights day, the c..

  Considering the risk around the cost point estimate

Considering the risk around the cost point estimate, what type of contract will generally be used for the contracted effort?

  Current debt-equity ratio-risk level of project

Kelly's uses the firm's WACC as the required return for some of its projects. For other projects, the firms uses a rate equal to WACC plus 1 percent, while another set of projects is assigned rates equal to WACC minus some amount. Which one of the fo..

  Assume dividends will continue to grow at rate similar

Over the past 5 years, NBA’s common stock earnings per share have grown from $0.62 to $0.91. If an investor in NBA stock is assumed to have a required rate of return of 14%, what is the estimated value of NBA if its current dividend is $0.12? Assume ..

  How should eec tie performance measures to compensation

Discuss unethical behavior that can result if the wrong performance measures are used to tie performance measures to compensation.

  Describe the ethical and human resource

E88 is an innovative company run on the principles of its entrepreneurial owner. The company has a diverse range of operations including a carbon neutral package distribution service, 'responsibly' sourced clothing for children, mobile telephones and..

  Is this a discount or premium bond

Compute the price of a 4.9 percent coupon bond with 15 years left to maturity and a market interest rate of 7.6 percent. What is the bond price? Is this a discount or premium bond?

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