User Account

All Pages

Calculate the terminal cash flows in year 6

Assignment Help Finance Basics
Reference no: EM132538807

The Tanamera Toy Corporation (TTC) currently uses an injection moulding machine that was purchased 3 years ago. This machine has 5 years of remaining life. The machine was initially purchased at a cost of RM400,000. The current market value of the machine is estimated at RM260,000.

TTC is offered a replacement machine at a purchase price of RM340,000, with an estimated useful life of 6 years, and salvage value of RM15,000. However, to have the machine ready to be operated, TTC needs to install a cooling coil at a cost of RM50,000. This replacement machine would permit an output expansion, so that sales would rise by RM55,000 per year. The new machine's much greater efficiency would also cause the operating expenses to decline by RM10,000 per year. This new machine, however, would require that inventories be increased by RM150,000, and accounts payable would simultaneously increase by RM100,000.

Having heard about the efficiency of this new machine and in considering the replacement of the current machine, TTC hired an outside technical consultant to do a industrial survey on the machine's capability. This had cost TTC a fee of RM75,000.

TTC adopts a simple straight-line depreciation method for financial reporting purposes. The corporate tax rate is 25 percent.

a. How much is the net cost (initial outlay) to replace the injection moulding machine today?

b. How much will be the annual after-tax operating cash flows in Year 1 until 6?

c. Calculate the terminal cash flows in Year 6 (at the end of the useful life of the machine).

d. If TTC's cost of capital for this type of project is 15 percent, calculate the NPV of this replacement. Should TTC proceed with this replacement idea?

e. Calculate the payback period for this replacement project. If the management has set a maximum acceptable payback period of 3 years for this project, should TTC proceed with this replacement idea based on this payback criterion?

f. Based on the answers in (d) and (e), should TTC proceed with this replacement project? Explain your answer.

Reference no: EM132538807

Questions Cloud

Decision change if payback method was used : Assume you are a finance manager of the company. Which project you should Choose based on NPV? Would your decision change if payback method was used?
How much is the gain or loss on sale on December : Blue Corp. acquired on January 1, 2017 a 5 year, 10%, P5,000,000 face value bonds for 4,639,400, How much is the gain or loss on sale on December
What rate of growth must be expected for sidco : What rate of growth must be expected for sidco? The firm is expected to earn $27 per share this year and to pay a year-end dividend of $18.
Calculate the cost of new common stock issue : Calculate the cost of new common stock issue and retained earnings. Zegha Technologies Company's common stock currently sells for $46
Calculate the terminal cash flows in year 6 : The Tanamera Toy Corporation (TTC) currently uses an injection moulding machine that was purchased 3 years ago. This machine has 5 years of remaining life.
Compute the required rate of return from the preferred stock : A preferred stock pays an annual dividend of $9 and the current market price is $81. Compute the required rate of return from the preferred stock.
Demonstrate practical skills in normalisation : Demonstrate practical skills in normalisation and convert a conceptual database design to a logical design in 3NF - relational database principles and theory
What is the coupon rate and current yield : Find what is the coupon rate, current yield? Approximate yield to maturity and capital gains yield?If the bonds are purchased at the market price
What is the probability that a freshman will pass : What is the probability that a freshman will pass neither Business Statistics nor Probability in the first academic year

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd