Used would be depreciated by the straight-line method

Assignment Help Financial Management
Reference no: EM131185004

TexMex Food Company is considering a new salsa whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no change in net operating working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other TexMex products and would reduce their pre-tax annual cash flows. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) WACC 10.0% Pre-tax cash flow reduction for other products (cannibalization) -$5,000 Investment cost (depreciable basis) $80,000 Straight-line depr. rate 33.333% Annual sales revenues $66000 Annual operating costs (excl. depr.) -$25,000 Tax rate 35.0% Answer 16980 16550 17260 13890 14030

Reference no: EM131185004

Questions Cloud

Opportunity cost approach : If the defender can be sold for $80,000 today but you decide to keep the defender, what is the proper treatment of the $80,000 using the opportunity cost approach? Explain how Opportunity cost is used when evaluating projects using the opportunity co..
Calculate the payback period-the NPV and the IRR : McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $748 per set and have a variable cost of $378 per set. The company has spent $168,000 for a marketing study that determined the company will sell 76,800 sets per year ..
What is the operating cash flow or OCF : Hailey, Inc., has sales of $19,720, costs of $9,310, depreciation expense of $1,980, and interest expense of $1,470. Assume the tax rate is 40 percent. What is the operating cash flow, or OCF?
Risk-free rate of interest-market risk premium : Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 6%, and the market risk premium is 7%. Harrison estimates that if it acquires Van Buren, the year-end dividend will remain at $1.87 a..
Used would be depreciated by the straight-line method : TexMex Food Company is considering a new salsa whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no change in net operating working capi..
Considering two financial plans for the coming year : Quigley Inc. is considering two financial plans for the coming year. Management expects sales to be $300,000, operating costs to be $265,000, assets to be $200,000, and its tax rate to be 35%. Under Plan A it would use 25% debt and 75% common equity...
Evaluate generation project with the cash flows : Howell Petroleum, Inc., is trying to evaluate a generation project with the following cash flows: Year Cash Flow 0 –$44,000,000 1 69,500,000 2 –19,000,000 Required: If the company requires a 9 percent return on its investments, what is the NPV of the..
Calculate the MIRR of the project using all three methods : Chamberlain Corp. is evaluating a project with the following cash flows. The company uses a discount rate of 10 percent and a reinvestment rate of 7 percent on all of its projects. Year Cash Flow 0 –$ 15,400 1 6,500 2 7,700 3 7,300 4 6,100 5 – 3,500 ..
What will be the net change in the cash conversion cycle : Van Den Borsh Corp. has annual sales of $71,735,000, an average inventory level of $15,012,000, and average accounts receivable of $10,008,000. The firm's cost of goods sold is 85% of sales. The company makes all purchases on credit and has always pa..

Reviews

Write a Review

 

Financial Management Questions & Answers

  The liquidity premium on the corporate bond

A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond?

  Determine how many months will be needed to pay off the loan

Kendall borrows $100,000 on Jan 1, 1993 to be repaid in 12 annual installments at an effective annual rate of interest of 8%. The first payment is due on Jan 1, 1994. Instead of annual payments she decides to make monthly payments equal to one-twelft..

  Find the NPV of the investment

Consider an investment that cost $150,000 and has a cash inflow of $40,000 every year for 5 years. The required return on the investment is 8%. Find the NPV of the investment and determine if it should be purchased.

  Effect of factors on changes in currency exchange rates

Determine the effect of the following factors on changes in currency exchange rates, providing examples using the rate of exchange between two currencies.

  Use the annual sales figure when evaluating this project

Winnebagel Corp. currently sells 30,000 motor homes per year ay $73,000 each and 14,000 luxury motor coaches per year at $120,000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 25,000 of thes..

  Based on the pure expectation theory

Assume that as of today the annualized two year interest rate is 12 percent and one year interest rate is 9 percent. A three year security has an annualized interest rate of 14 percent. Based on the pure expectation theory, what is the one year forwa..

  Net present value if brisbane keeps using its current system

The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $208 with a resulting contribution margin of $70. What is the Year 2 cash flow if Brisbane keeps using its current system?  What is the Year 2 cash flo..

  Inverse relationship between bond prices and yields

There is an inverse relationship between bond prices and yields. This inverse relationship will be demonstrated by calculating bond prices to show that interest rates move inversely: if yields rise, then bond prices fall.

  Consider re-captured depreciation and its tax treatment

J.B. Corporation is considering the purchase of equipment that has an invoice price of $450,000. The equipment was recommended by a consulting firm that did an analysis for J. B. Corporation. J. B. paid the consulting firm $12,000 for its report. Cal..

  What accounting principle does this address

Donald’s Drive-in Hamburger restaurant pays its employees on Friday for every week (regular work week - Monday through Friday.) The total payroll for the last week of the calendar year is $5,000, and the year ends on Wednesday. What accounts should p..

  Campc is a 5-year old chain of 12 medium-sized supermarkets

campc is a 5-year old chain of 12 medium-sized supermarkets. the supermarkets are targeting the middle- and top-income

  The firms net income-total dollar returns to investors

Seattle Health Plans currently uses zero debt financing. Its operating income (EBIT) is $1 million, and it pays taxes at a 40 percent rate. It has $5 million in assets and because it is all-equity financed $5 million in equity. the firm's net income?..

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