What is the incremental free cash flow for year one

Assignment Help Financial Management
Reference no: EM131020135

Your company is considering the replacement of an old delivery van with a new one that is more efficient. The old van cost $40,000 when it was purchased 5 years ago. The old van is being depreciated using the simplified straight line method over a useful life of 8 years. The old van could be sold today for $7,000. The new van has an invoice price of $80,000 and it will cost $6000 to modify the van to carry the company's products. Cost savings from the use of the new van are expected to be $28,000 per year for 5 years, at which time the van will be sold for its estimated salvage value of $18,000. The new van will be depreciated using the simplified straight line method over its 5 year useful life. The company's tax rate is 35%. Working capital is expected to increase by $5000 at the inception of the project, but this amount will be recaptured at the end of year five. What is the incremental free cash flow for year one? (Please show me how to work this problem out, not just give the answer)

Reference no: EM131020135

Questions Cloud

Bonds on the market with maturity : Hollin Corporation has bonds on the market with 18.5 years to maturity, a YTM of 6.5 percent, and a current price of $1,048. The bonds make semiannual payments. What must the coupon rate be on these bonds? Step by step please.
In a principal–agent view of bureaucratic behavior : In a principal–agent view of bureaucratic behavior, a bureaucratic agency’s principals are A. The firms from whom it makes purchases. B. The President. C. The citizen taxpayers. D. Its staff members.
Expected return-standard deviation of investors portfolio : Two companies Amber and Bolt are manufacturers of glass. The securities of the companies are listed and traded in the New York Stock Exchange. An investor’s portfolio consists of these two securities in the proportion of 5/6 and 1/6 respectively. Cal..
End of each year into an equity fund : Assume you invest $5,300 at the end of each year into an equity fund. The fund is expected to pay 11.4% percent interest annually. How much money will you have in the fund in 20 years?
What is the incremental free cash flow for year one : Your company is considering the replacement of an old delivery van with a new one that is more efficient. The old van cost $40,000 when it was purchased 5 years ago. The old van is being depreciated using the simplified straight line method over a us..
Explain the concept of risk and bheta : Explain the concept of risk and bheta. Include bheta’s different cases. Give your OWN examples. 2. Discuss bheta’s determinants. Give your OWN examples.
Mention the sarbanes and oxley act : Elaborate on the concepts of governance, accountability, transparency in companies. Ascertain that you include the interaction of owners, management and Board of Directors. Furthermore, mention the Sarbanes /Oxley act.
What do you expect the price of the bond to be in two years : You own a bond with the following features: 8 years to maturity, face value of $1000, coupon rate of 2% (annual coupons) and yield to maturity of 2.3%. If you expect the yield to maturity to remain at 2.3%, what do you expect the price of the bond to..
What is the after-tax salvage value of the old machine : Waterford Industries is considering the purchase of a new machine. It will replace an existing but obsolete machine that will be sold for $50,000. What is the after-tax salvage value of the old machine?

Reviews

Write a Review

 

Financial Management Questions & Answers

  How you make or lose money by taking naked position on one

Explain the advantages and disadvantages to entering into a forward contract, and how you make or lose money by taking a naked position on one. Discuss issues of liquidity and your ability to tailor the contract to your needs in terms of delivery dat..

  Mutch uses the perpetual inventory system

On October 1m Mutch Company sold merchadise in the amount of $5,800 to Carr Company, with credit terms of 2/10,n/30. The cost of the items sold is $4,000. Mutch uses the perpetual inventory system. On October 4, Carr returns some of the merchandise. ..

  What is its economic value added

Spencer Inc has the following information for the current year: Net income=$600; Net operating profit after taxes (NOPAT) = $600; Total assests = $4,000; short term investments = $500; stockholders equity =$2000; debt=$1000; and total net operating c..

  Historical returns-expected and required rates of return

Historical Returns: expected and Required Rates of Return You have observed the following returns over time: Assume that the risk-free rate is 5% and the market risk premium is 6%. Do not round intermediate calculations. What is the beta of Stock X?

  Delaying reduce projects coefficient of variation

The firm has a 75% chance if it invests -$1,500 a return of $500 for 7-years, and a 25% chance of returning $25 for 7-years. Calculate the effect of waiting on the project's risk, using the same data. By how much will delaying reduce the project's co..

  What should be the price of portage bay stock

Portage Bay Enterprise has $2 million in excess cash, no debt, and is expected to have free cash flow of $12 million next year. Its FCF is then expected to grow at a rate of 3% per year forever. If Portage Bay's equity cost of capital is 10% and it h..

  How much should you be willing to pay for bond

Bond X is noncallable and has 20 years to maturity, a 7% annual coupon, and a $1,000 par value. Your required return on Bond X is 11%; and if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5, years the yie..

  Record entries and build the financial statements

Create a chart of T-Accounts and post each journal entry to the appropriate accounts.

  Percentage change in price for a zero coupon bond

What is the percentage change in price for a zero coupon bond if the yield changes from 6.5% to 5.5%? The bond has a face value of $1000 and it matures in 10 years. Use the price determined from the first yield, 6.5% as the base in the percentage cal..

  Retention ratio-what is the profit margin

A firm has a retention ratio of 49 percent and a sustainable growth rate of 7.80 percent. The capital intensity ratio is 1.73 and the debt-equity ratio is .84. What is the profit margin?

  What net present value means to your future

Write a 500-1,000 word essay describing Net Present Value, and what Net Present Value means to your future.

  High book-to-market ratios have positive alphas

The book-to-market is the observation that firms with high book-to-market ratios have positive alphas. If the market portfolio is not efficient, then a portfolio of high book-to-market stocks will likely have positive alphas. Portfolios with high mar..

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