Reference no: EM133164838

Question - Puma Plundge sales have been great. The main competitor in the plunger maker market is GGG Puma Plundge current product is similar to the GGGs but easier to use. However, Puma Plundge wants to introduce a new version plunger, the master plunger, into their lineup. Puma Plundge spent $300,000 to develop the new product, which can adjust water temperature according to different types of clean up  and bubbles directly into the included. The company has spent a further $50,000 on a marketing study to determine the new products expected sales figures.

Puma Plundge can manufacture the new product maker for $55 per machine in variable costs. Fixed costs for the operation are estimated to run $1,500,000 per year. The estimated sales volumes (in units) are 140,000, 160,000, and 100,000 products per year for the next three years, respectively. The unit price of the new product will be $95. The necessary equipment can be purchased for $3,000,000 and will be depreciated on a five-year MACRS schedule. It is believed the value of the equipment in three years will be $1,500,000.

As previously stated, Puma Plundge currently manufactures a current product. Production of the existing product is expected to be terminated in two years. If Puma Plundge does not introduce the new product, sales of the existing product will be 100,000 and 90,000 units per year for the next two years, respectively. The price of the existing product, the current product is $75 per coffee maker, with variable costs of $45 each and fixed costs of $900,000 per year. If Puma Plundge does introduce the new product, sales of the existing one will fall by 50,000 (units) products per year, and the price of the existing product will have to be lowered to $40 per product.

Net working capital for the new project will be 20 percent of sales and will occur with the timing of the cash flows for the year; for example, there is no initial outlay for NWC, but changes in NWC will first occur in Year 1 with the first year's sales. Puma Plundge has a 20 percent corporate tax rate. The company has a target debt to equity ratio of 0.5 and is currently A rated (according to S&P 500 ratings). The overall cost of capital of CougCoffee Puma Plundge is 14 percent.

What is the income statement and total cash flow (CFFA) table for the new project?

Using tables, what are the relevant and irrelevant cash flows of this project?