Compute initial net investment and the annual net cash flow

Assignment Help Financial Management

Reference no: EM131338299

Argyl Manufacturing is evaluating the possibility of expanding its operations. This expansion will require the purchase of land at a cost of $100,000. A new building will cost $100,000 and will be depreciated on a straight-line basis over 20 years to a salvage value of $0. Actual land salvage at the end of 20 years is expected to be $200,000. Actual building salvage at the end of 20 years is expected to be $150,000.

Equipment for the facility is expected to cost $250,000. Installation costs will be an additional $40,000 and shipping costs will be $10,000. This equipment will be depreciated as a 7-year MACRS asset. Actual estimated salvage at the end of 20 years is $0. The project will require net working capital of $70,000 initially (year 0), an additional $40,000 at the end of year 1, and an additional $40,000 at the end of year 2.

The project is expected to generate increased EBIT (operating income) for the firm of $100,000 during year 1. Annual EBIT is expected to grow at a rate of 4 percent per year until the project terminates at the end of year 20. The marginal tax rate is 40 percent.

(Hint: See Appendix 9A for information on MACRS depreciation.)

Compute the initial net investment and the annual net cash flow from the project in year 20.

Reference no: EM131338299

Questions Cloud

Define sinusoidal function : A swimming pool is 75 feet long and 42 feet wide. If 7.48 gallons equals 1 cubic foot, how many gallons of water are needed to raise the level of the water 4 inches?

Benefits of utilizing the ten necessary decision-support : For a healthcare facility, explain the benefits of utilizing the ten necessary decision-support tools presented in Chapter 10 of your textbook. Your response must be at least 200 words in length.

How advancements in clinical systems can benefit : Explain how advancements in clinical systems can benefit healthcare organizations today. Your response must be at least 200 words in length.

Critically assess the performance and position of a company : Analysis and critically assess the Performance and Position of a company. Examine various parts - look for inter-relationships. Decide the value/give judgement. Support all evidence. Income Statement, Cash Flow Statement, Competitors/industry

Compute initial net investment and the annual net cash flow : Argyl Manufacturing is evaluating the possibility of expanding its operations.- Compute the initial net investment and the annual net cash flow from the project in year 20.

Write a paper on any aspect of african american experience : The African American experience has been a paradox of incredible triumph in the face of tremendous human tragedy and adversity. Based on your understanding of the American experience, craft a short essay in support of this statement.

Health risk assessment program : City Police Department instituted a health risk assessment program because it was concerned that all of its employees be physically fit and because its health insurance company indicated that health insurance premiums would be lower if the health ..

What is the average monthly temperature in february : According to your model, what is the average monthly temperature in February? How does this compare to the actual average?

Calculate the net investment for the proposed tampa store : The land is presently worth $500,000 and is expected to remain at $500,000 while the store is being built. Calculate the net investment for the proposed Tampa store.

User Account

All Pages