Evaluating the introduction of a new product line

Assignment Help Financial Management
Reference no: EM13938337

K is evaluating the introduction of a new product line at her plumbing and Supply Company. She anticipates a selling price of $500 per unit, with sales volume of 2,000 units in Year 1, 3,000 units in Year 2 and 1,500 units in Year 3. Variable costs amount to $300 per unit and fixed costs are $200,000 per year. The project requires an initial investment of $335,000 in assets which will be depreciated using the straight-line a zero salvage value of the project's three-year life. K's firm as an average tax rate of 34% and investors require a 12% rate of return on projects with this level of risk. What is the operating cash flow (OCF) on this project in Year 2?

Reference no: EM13938337

Questions Cloud

Skills and context of the traditional manager : Identifying and developing global leaders is a key concern for international companies. Compare and contrast the skills and context of the traditional, national manager with that of the international manager. Your original response to this discus..
What is your best estimate of the aftertax cost of debt : Jiminy's Cricket Farm issued a 30-year, 7 percent semi-annual bond 8 years ago. The bond currently sells for 87 percent of its face value. The book value of the debt issue is $25 million. The company's tax rate is 33 percent. What is your best estima..
Bonds make annual payments and mature : You bought one of Great White Shark Repellant Co.’s 11 percent coupon bonds one year ago for $810. These bonds make annual payments and mature 15 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 14..
Organizational change: a conceptual approach : Read the article titled "Multilevel Readiness to Organizational Change: A Conceptual Approach". Give your opinion on which two (2) means of diagnosing change are most relevant to today's organizations. What is meant by the term "readiness"?
Evaluating the introduction of a new product line : K is evaluating the introduction of a new product line at her plumbing and Supply Company. She anticipates a selling price of $500 per unit, with sales volume of 2,000 units in Year 1, 3,000 units in Year 2 and 1,500 units in Year 3.
What is expected return on portfolio-invested in two assets : A stock has a beta of .7 and an expected return of 17 percent. A risk-free asset currently earns 4.8 percent. What is the expected return on a portfolio that is equally invested in the two assets? If a portfolio of the two assets has a beta of 1.27, ..
Prepare a scatter graph of customer service cost : Prepare a scatter graph of customer service cost (vertical axis) and sales (horizontal axis).
What is the current price of van burens stock : Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 4% and the market risk premium is 8%. Van Buren currently expects to pay a year-end dividend of $2.85 a share (D1 = $2.85). Van Buren..
What is the definition of a city : What is the definition of a "city". Please provide a 300 word answer.

Reviews

Write a Review

Financial Management Questions & Answers

  Methods of determining the monetary advantage

There are several accepted methods of determining the monetary advantage of one investment opportunity over another: The payback method; zero discount rate; net present value; internal rate of return; modified internal rate of return; etc. Discuss on..

  What is the lenders expected annual yield

A $150,000, 15-year, monthly payment mortgage loan carries an interest rate of 5.5%, plus three points. The points are financed. What is the lender’s expected annual yield if the loan is amortized over the full 15 years?

  Compute the current market value of bond

Compute the current market value of a bond with a $784 face value, maturing in 9 years, an interest rate of 10%, and annual payments of $64. Compute the present value of an ordinary annuity receiving 7 annual payments of $29 at an interest rate of: 2..

  Delay in integrating the acquired business

Delay in integrating the acquired business can contribute to which of the following?

  About the current operating capacity

Alter Bridge Mfg., Inc., is currently operating at only 88 percent of fixed asset capacity. Current sales are $680,000. Fixed assets are $420,000 and sales are projected to grow to $830,000. How much in new fixed assets are required to support this g..

  Two different bonds currently outstanding

The McKeegan Corporation has two different bonds currently outstanding. Bond M has a face value of $13,500 and matures in 17 years. The bond makes no payments for the first 5 years, then pays $700 every six months over the subsequent 7 years, and fin..

  Did you pay the right price for the bond

Rockne, Inc., has outstanding bonds that will mature in six years and pay an 8 percent coupon semiannually. If you paid $1,142.42 today and your required rate of return was 4.64 percent. Did you pay the right price for the bond?

  Without tax-key condition for equilibrium to occur in market

The key condition for equilibrium to occur in a market is: Without taxes, the market price per bag of apples is $5. With a $2 tax per bag of apples, buyers now pay $5.75 per bag. What is the final price per bag of apples received by sellers?

  NPV value obtained by discounting nominal cash flows

The NPV value obtained by discounting nominal cash flows using the nominal discount rate is the: I) same as the NPV value obtained by discounting real cash flows using the real discount rate II) same as the NPV value obtained by discounting real cash..

  What are the effects on the after-tax profits-cash flow

A project currently generates sales of $11.5 million, variable costs equal to 40% of sales, and fixed costs of $3.5 million. The firm’s tax rate is 35%. What are the effects on the after-tax profits and cash flow, if sales increase from $11.5 million..

  1 if a firm raises capital by selling new bonds it would be

1. if a firm raises capital by selling new bonds it would be called the issuing firm and the coupon rate is usually set

  Holding period return and annual percentage rate

Chad purchased Hampton Industries Inc. stock for $14.65 and sold it 6 months later for $17.38 after receiving a $0.25 dividend. What is Chad's holding period return (HPR), Annual Percentage Rate (APR), and Effective Annual Rate (EAR)?

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