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
Define the term- Future Cost and Historical Cost Future cost of capital refers to expected cost of funds to be raised to finance a project. In contrast, historical cost signifi


Calculate the amplitude of the DC component: A periodic voltage consists of sinusoidal pulses having an amplitude of 150 V (SEE DIAGRAM BELOW). Use Fourier Series Expansion to

What can be the reason for the negative synergistic gains for British acquisitions of U.S. firms? Negative synergies for British acquisitions of U.S. firms (united state firms) m

dividend decisions has an influence on the share value and subsequently the overall company value.

Public Bourses The origin of this type of bourses can be found in the legislative work of Napoleon. These type of bourses are regulated by the government, brokers are appointed

EVALUATE THE IMPORTANCE OF LEVERAGE IN FINANCIAL MANAGEMENT OF SMALL SCALE COMPANY

Bond valuation would be relatively simple if interest rates exhibit little day-to-day volatility. One could value a bond by discounting each of its cash flows at

Institutional Clearing Member (ICM) A Financial Institution has to subscribe to at least 100 equity shares of Rs.10,000 each to become an Institutional Clearing Member of COFEI

How does the market determine the fair value of a bond? The bond’s fair value is the present value of the bond's coupon interest payments plus the present value of the face value