User Account

All Pages

The after-tax salvage and the return of working capital

Assignment Help Financial Management
Reference no: EM13828691

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $1,080,000, and it would cost another $22,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $605,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $380,000 per year in before-tax operating costs, mainly labor.  Campbell’s marginal tax rate is 35%.

a. What is the Year 0 net cash flow?

b. What are the net operating cash flows in Years 1, 2, and 3?

c. What is the additional Year-3 cash flow (i.e., the after-tax salvage and the return of working capital)?

d. Based on your IRR analysis, if the project’s cost of capital is 12%, should the machine be purchased?

Reference no: EM13828691

Questions Cloud

Giving null and research hypothesis : Giving Null and Research Hypothesis
Define reintregrative shaming and restorative justice : What is the relationship or connection between reintregrative shaming and restorative justice
Management and organization behavior issues : Prepare a five-page paper discussing a current news event found on www.cnn.com OR www.foxnews.com OR www.msnbc.com that involves management and organization behavior issues.
Adopt during the cold war : Which of the following policies did the United States adopt during the Cold War?
The after-tax salvage and the return of working capital : The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $1,080,000, and it would cost another $22,500 to install it.  What are the net operating cash flows in Years 1, 2, and 3? What is t..
Improve the employee heath and well being : Evaluate four (4) of the interventions that organizations can introduce to their employee to improve the employee heath and well being. You need to explain why and how that organization's characteristic can introduce to their employee to improve t..
Use of the irr method of evaluation : Use the internal rate of return (IRR) approach to help you select from among the two projects under consideration. Discuss the various pitfalls identified related to use of the IRR method of evaluation.
Theory about the use of nuclear weapons : Which of the following is a theory about the use of nuclear weapons?
Calculate p-value of f test for given dataset : Calculate p-value of F test for Given Dataset

Reviews

Write a Review

Financial Management Questions & Answers

  Taxable income-tax liability and tax refund or tax owed

Mary Watson is 24 years old and single lives in an apartment and has no dependents. Last year she earned 45,000 as a sales assistant for focus to business analytics: $3910 of her wages was withheld for federal income taxes. In addition, she had inter..

  Calculate the cost of common equity financing

Last year a company paid dividends $4.95. The company's dividends are expected to grow at an annual rate of 3.34% forever. The company's common stock is currently selling on the market for $75.85. The investment banker will charge floats costs $3.41 ..

  How much of this will be debt and equity

Compute the weighted average cost of capital on the first $250 million of funds and saven Travel will need to raise $150 of additional capital for expansion. How much of this will be debt and equity?

  Cross border acquisitions by multinational corporations

What are the conditions that affect the success or lack of success in cross border acquisitions by multinational corporations? Give an example

  What is the real rate of return of large-cap stocks

Large- Cap stocks had the nominal rates of return of 13.20 percent. The rate of inflation during the last year was 4.07 percent. What is the real rate of return of large-cap stocks?

  What amount should be used as the initial cash flow

Marshall's & Co. purchased a corner lot in Eglon City five years ago at a cost of $640,000. The lot was recently appraised at $670,000. At the time of the purchase, the company spent $30,000 to grade the lot and another $3,200 to build a small buildi..

  Calibration of new production equipment

Mary Chong, capital expenditure manager for PDA Manufacturing, knows that her company is facing a series of monthly expenses associated with installation and calibration of new production equipment. The company has $1 million in a bank account right ..

  What are the floatation costs for issuing preferred share

(Cost of preferred stock) The preferred stock of Gator Industries sells for $35.08 and pays $2.71 per year in dividends. What is the cost of preferred stock financing? If Gator were to issue 525,000 more preferred shares just like the ones it current..

  Estimate the historical standard deviation

Estimate the historical standard deviation of google and compare the implied standard deviation with the historical standard deviation.

  Retire plan problem

Warren Reed just turned 40. He has decided that he would like to retire when he is 65. He thinks that he will need $2,000,000 in special retirement accounts at age 65 to maintain his current lifestyle. For the next 15 years he can afford to put $10,0..

  What price you should pay for the stock

Green Co. just paid dividend of $1.50 per share. The company predicts that the dividend will increase 10% for next 3 years and 6 percent thereafter forever. If your required rate of return is 8%, what price you should pay for the stock?

  In a decision tree-accept-reject decision is dependent

In a decision tree, the accept/reject decision is dependent upon:

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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