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. Credit control - account receivable management? Once credit has been established it is important to review outstanding accounts on a regular basis so overdue accounts can be

Conversion value is the amount which investors will receive by immediately exchanging the bonds for equity stock and selling the stock at prevailing market

Generally, an interest rate or an interest rate index is used as a reference rate for However, through financial engineering, issuers have been able to construct

Q. What do you mean by Time value of money ? The concept of TVM refers to the fact that the money received today is different in its worth from the money receivable at some oth

The consolidated income statement for AB Group for the year ended 30 June 2010: (all amounts in the workings are in $000, unless stated otherwise)

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

What are the major sections of the statement of cash flows? a.Cash flows from Operations b.Cash flows from investing activities c.Cash flows from financing activities

Q. What is ABC Analysis? ABC Analysis: - ABC Analysis is a method of controlling different items of inventory. Generally a firm has to maintain several different items as inven

38. The optimum capital structure is the one with i) highest value of the firm ii) Lowest value of the firm iii) highest shares in numbers iv) highest debt

Q. Compute the weighted average cost of capital? A company's subsequent to tax specific cost of capital are as follows: Cost of debt