Investment attractive to the company

Assignment Help Financial Management
Reference no: EM132001509

Muscle Motors has a new sports car called the SmoMobile® that it is evaluating before bringing to market. The new car, which is customized for the buyer, would be sold for the next five years at a price of $95,000 each. The equipment necessary for production will cost $165 million and be depreciated on a 5-year MACRS schedule. The company projects that fixed costs will be $53.9 million per year and variable costs will be $49,600 per car. The company will require an investment in inventory equal to 10 percent of sales a year prior to the sale. The inventory will be returned at the end of the project’s life. The equipment can be sold for $20 million at the end of the project, although the company will retain the equipment for a future model. The required return is 12 percent and the tax rate is 38 percent. How many cars must be sold each year to make this investment attractive to the company?

Reference no: EM132001509

Questions Cloud

Calculate payback period-profitability index-NPV and IRR : Pretty Kitty Supplies (PKS) is based in Bethesda, Calculate the payback period, profitability index, NPV and IRR.
What initial salary would ben need to receive : What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position?
What is the company cost of common equity : What is the company's cost of common equity if all of its equity comes from retained earnings?
How is leadership exercised in this organisation : How is leadership exercised in this organisation? How might a worker in your profession within this organisation engage in leadership roles?
Investment attractive to the company : How many cars must be sold each year to make this investment attractive to the company?
Laser range finder-what is the project NPV : Bennington Golf has developed a new laser range finder. The company has a tax rate of 38 percent. What is the project’s NPV?
Determine the acceptability of the investment : Miner's Mexican Grill Inc. plans to open its 100th restaurant by the end of next year. The new restaurant will require an initial investment of $300,000.
Develop a deeper familiarity with the approaches : In order for you to select the qualitative research approach that best fits your research question, you will need to develop a deeper familiarity.
What percentage of the gross price is the investment bank : What percentage of the gross price is the investment bank charging The Fitness Studio for underwriting the stock issue?

Reviews

Write a Review

Financial Management Questions & Answers

  Managers exceed their investors required return

At the beginning of 2013, Apple’s beta was 1.2 and the risk-free was about 3%. Apple’s price was $75. Apple’s price at the end of 2013 was $80. If you estimate the market risk premium to have been 6%, did Apple’s managers exceed their investors’ requ..

  Calculate the present value of this investment

1. Cash flows from a new factory are expected to be $3,000,000 per year, every year for the next ten (10) years. If investor's use 6.25% as the discount rate, calculate the present value of this investment.

  North construction used historical ratios

North Construction used historical ratios and certain assumptions to obtain a forecast of its balance sheet for next year as follows:

  The market for trading newly issued securities

Which financial market role gives investors the opportunity to hedge their risk of loss? The market for trading newly issued securities is known as the:

  Discuss about the stock trading system

The simulation should be performed day by day (probably using for loop) but not necessary to buy or sell every day.

  Shareholders expectation on their expectation

What is the minimum growth rate this company needs to achieve to satisfy the Shareholders’ Expectation on their expectation?

  Before-tax cost of debt capital-average risk projects

The Classic Car co. has a before-tax cost of debt capital of 9%, a cost of preferred stock of 10%, a cost of equity capital of 14%, and a marginal tax rate of 40%. The market values of its debt, preferred stock and common stock are $40 million, $20 m..

  What rate of return is sally receiving on the loan

Sally Johnson loaned a friend $10,000 at 15% interest, compounded annually. The loan will be paid in five equal end-of-year payments. Sally expects the inflation rate to be 12%. After taking inflation into account, what rate of return is Sally receiv..

  What does the irr rule advise regarding payment? arrangement

Professor Wendy Smith has been offered the following? opportunity: A law firm would like to retain her for an upfront payment of $49,000. In ?return, for the next year the firm would have access to eight hours of her time every month. Smith's rate is..

  The project using the discounting approach method

Slow Ride Corp. is evaluating a project with the following cash flows: Year Cash Flow 0 –$ 29,100 1 11,300 2 14,000 3 15,900 4 13,000 5 – 9,500 The company uses an interest rate of 8 percent on all of its projects. Calculate the MIRR of the project u..

  What is value of call option-using risk-free approach

What is the value of the call option, using the risk-free approach, if the strike price is $55 per share?

  What is the amount of gain recognized on the sale

Bob and Elizabeth, both 55 years old and married, sell their personal residence to Wolfgang. Wolfgang pays $660,000 and assumes their $90,000 mortgage. To make the sale they pay $20,000 in commissions and $10,000 in legal costs. They have owned and l..

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!

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