Calculate the cash flows, Financial Management

Your firm will produce widgets for the next 10 years (starting at t=1). Annual revenue from

selling widgets is $20,000. Production requires an initial outlay (at t=0) for machinery of $50,000, and

involves annual expenses for labor and raw materials of $3,000. In addition, the operation requires the firmto hold a certain amount of inventory. It is estimated that the level of inventory required is 10% of annualsales. You will need to build up this level of inventory before you start the project (i.e., at t=0). Themachinery will last 10 years and have zero salvage value. Any remaining assets of the firm will be

liquidated at the end of the ten years. Assume that the firm uses straight-line depreciation over the life ofthe equipment, pays 40% tax, and that all cash flows occur at the end of the year.

a) Calculate the after-tax operating cash flows for this firm

b) With an 8% WACC, what is the NPV of the project? Should you undertake it?

Q You are considering a new line of consumer products. You expect revenues of $14 million in

each of the next ten years, while expenses are half of revenues (all cash flows are assumed to be at year end).The project requires an initial investment of $20 million at the beginning of the first year, which may bedepreciated for tax purposes using a straight-line depreciation over five years. The project requires workingcapital of $8 million dollars at the beginning of the first year. $5 million of the working capital is recovered atthe end of year 5, and the rest is recovered at the end of year 10. A feasibility study of the new product, whichhas already been completed, cost $3 million. The project will utilize facilities that could be rented out for $1million per year in years 1 through 10. The company's tax rate is 35 percent.

a) Calculate the after-tax operating cash flows for this project.

b) With a 10% WACC, what is the NPV of the project? Should you undertake it?

Posted Date: 3/4/2013 7:30:14 AM | Location : United States







Related Discussions:- Calculate the cash flows, Assignment Help, Ask Question on Calculate the cash flows, Get Answer, Expert's Help, Calculate the cash flows Discussions

Write discussion on Calculate the cash flows
Your posts are moderated
Related Questions
Critical investment decisions may be taken based on the ratings offered by the credit rating agency. In order to ensure that the rating leads to good investment d

Explain the terms- Stock and  Share Stock Ownership of a company represented by shares that are a claim on the company's earnings and assets. Share Unit of equity

I need a paper on the financial status of the company under armour with ratios using information from yahoo.com finances. & Id like to provide a document with further details

Portfolios are simply combinations of different securities. The characteristics of investments do differ when we possess them in combinations or portfolios. As we shall see, an ass

What remains of an organization revenue after all expenses and taxes have been paid.

It is an accounting term which refers to the balance sheet item that accounts for dividends that have been confirmed but not yet given to shareholders. Accrued dividends are taken

One of the most important objectives of statistical analysis is to get one single value that describes the characteristic of the entire mass of unwieldy

In US, savings and loan associations constitute the major originating group of the traditional loans. What types of properties can be mortgaged?

Contents of the Offering Memorandum Executive Summary: It constitutes one of the most important parts of the document and is the key selling chapter of the document. It should

Residual Income This is used for external reporting purposes. This term refers to the net income which is available for distribution to the firm's common stock holders. In mana