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
Q. Show Gross Vs net working capital? The distinction between the gross working capital or the net working capital does not in any way undermine the relevance of the concepts o

Question: On a pilot basis a Government Department, PPO, is preparing its financial statements using accrual basis. The following information is provided: The following bala

Define the market segmentation of the term structure of interest rates. Market segmentation: And also the investors’ expectations regarding future interest rates and thei

Q. Formulation of Collection Policy ? Formulation of Collection Policy:- The third characteristic of the receivable management is to formulate a collection policy. Collection p

Question 1 International trade is the economic interaction among different nations involving the exchange of goods and services. Discuss the role of Banks in International Trade T

Q. Illustrate the Operating Leverage? Operating Leverage: - The operating leverage perhaps defined as the tendency of the operating profit to differ disproportional with sales.

What is the maximum price that you would be willing to pay for a constant growth stock that has the following characteristics: (a) Dividend (Has Paid): $3.25, (b) Growth: 7%, and (

Q. Show the Signs of Overtrading? There are a number of usually recognised signs that a company may be overtrading. These are considered mutually with relevant financial data f


Determine about the Systems based audit Systems based audit is useful as it would help identify risks within the processes in an organisation and review how adequate the contr