What is total incremental cash flow for project

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Reference no: EM132052997

1. Project Z will result in unit sales of 1,750, at a price of $550 each. The variable cost (VC) of each unit is $275. The cost accountant will allocate overhead on the existing plant to Project Z at a rate of $21 per unit. A special piece of equipment must be leased for $59,000 per year for purposes related solely to Project Z. Project Z will reduce sales of the same company’s Project X by 400 units (selling price of $850 with VC of $450 and overhead allocation of $32 per unit). What is the total incremental cash flow for Project Z?

$212,700

$262,250

$268,000

$308,450

$321,250

2. A firm is considering a project that will generate perpertual after-tax cash flows of 25,000 per year beginning next year. The project has the same risk as the firm's overall operations. Equity cost 15%and debt cost 6% on an after-tax basis. The firm's D/E ratio is 1.2. What is the most the firm can pay for the project and still earn its required return?

a) 212,250

b) 247,770

c) 276,500

d) 366,250

e) 412,750

Reference no: EM132052997

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