Nowc and dcf analysis

Assignment Help Financial Management
Reference no: EM1331510

NOWC and DCF Analysis 

The Comstock Corporation is considering investing in a new floor mat manufacturing machine that has an estimated life of three years.  The cost of the machine is $30,000 and the machine will be depreciated straight line over its three-year life to a residual value of $0. 

The floor mat manufacturing machine will result in new sales of 2,000 floor mats in year 1.  Sales are estimated to grow by 10% per year each year through year three.  Comstock will charge customers $18 per floor mat for all three years.  The floor mats have a cost per unit to manufacture of $9 each.  Incremental Selling, General & Administrative expenses are estimated to be $2,000 annually.  Comstock spent $7,000 over the last year on the design of the new floor mats.

Installation of the machine and the resulting increase in manufacturing capacity will require an increase in various net working capital accounts.  It is estimated that the Comstock Corporation needs to hold 6% of its next year's annual sales in accounts receivable, 9% of its next year's annual sales in inventory, and 5% of its next year's annual sales in accounts payable. 

The firm is in the 35% tax bracket, and has a cost of capital of 10%.

1.  Calculate the required investment in NOWC for the three years of the project.  Use these estimates of NOWC to calculate the Cash Flow from NOWC.

2.  Use the 5 year financial projection template on Moodle to calculate the NOPAT, Free Cash Flow, NPV and IRR of the 3 year project using the NOWC estimates from above and changing depreciation to 1/3 each year.

3.  Assume that Comstock must use the 5 year MACRS to depreciate the $30,000 machine, and will write it off after three years.  Now the remaining depreciation and tax benefit must be recognized in year three.  Calculate the new NOPAT, Free Cash Flow, NPV and IRR of the 3 year project.  Explain the change in NPV.

Reference no: EM1331510

Questions Cloud

Explain risk and benefits of creating online store : What risks and benefits do you think a business should consider before creating an online store
Considering various demographic segments : Considering various demographic segments such as older shoppers, teenagers, single mothers, and single, working professionals. What type of store environment might each of these shoppers prefer? What attributes might each segment rate as the most imp..
Explain how can rational thinking the above behaviors : Explain how can rational thinking the above behaviors. How do your thoughts impact, if at all, your opinion of the theory.
Build a simple airline ticket reservation program : modify a simple airline ticket reservation program in C++ that keeps track of individual passenger names, and their associated flight numbers, departure dates and times, and originating and destination cities.
Nowc and dcf analysis : Calculate the required investment in NOWC for the three years of the project.  Use these estimates of NOWC to calculate the Cash Flow from NOWC.
Explain online marketing- the arrival of the digital age : What additional steps should The Minister of Public Enterprise in Ireland take to ensure that the 'Celtic tiger' economy continues to be successful?
Explain how business demand is derived demand : Explain how business demand is derived demand?
Write down the worst cardiac simulator of all time : make the worst CARDIAC simulator of all time (in C++) that tells the user how to execute only a single instruction typed as a 3 digit number by the user.
Zero sampling risk : Besides the medical and environmental field what other testing issues do we demand 100% accuracy on (zero sampling risk)?

Reviews

Write a Review

 

Financial Management Questions & Answers

  What is the firms cost of preferred stock

What sources of capital should be included when you estimate XYZ's WACC? and Should the component costs be estimated on a before or after-tax basis? Why?

  Develop a financial analysis

Develop a financial analysis

  What is a business plan

Explain how the idea of a brewing device for a small apartment became a startup enterprise. What did you learn from that bit of entrepreneurial history

  What is the expected return on the market

What is the expected return on the market and What is the risk-free rate?

  Prepare a statement of revenues and expenses

Prepare a statement of revenues and expenses and a statement of changes in net assets for Wise Owls for 20X1.

  Understand the sources of finance available to a business

Explain the type of business organisation and it's ownership This should include : The business's name, the form of business organisation, (Partnership, Sole trader or limited company)

  Evaluate sharpe''s beta coefficient

Evaluate Sharpes Beta Coefficient,  Evaluate the Beta Coefficient for Stock X and Stock Y using both regression and the formula given in your text. Highlight your answers in red.

  Pricing objectives and pricing methods

Pricing objectives and pricing methods in the services sector

  How do market values affect the goal of financial managers

How do book values and market values affect the goal of financial managers? How will a firm determine if its level of liquidity is appropriate?

  Explain the objectives of a budgetary control system

Identify and explain the objectives of a budgetary control system and discuss the concept of a participative style of budgeting.

  Prepare a wac io and po tranche

Prepare a WAC IO and PO tranche to give a 5.75% deal coupon. Create a PAC class (A-1) with an initial collar of 50%-200% PPC, assuming base case defaults.

  Compute the npv for project

Compute the NPV for Project

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