What will the annual incremental cash flows for project

Assignment Help Financial Management

Reference no: EM131189255

You have developed a new a new recreational tennis racket with tennis great Jimmy Connors. You have paid Jimmy Connors for his involvement in the project $250,000. The racket is state of the art and guaranteed to correct any backhand. You now need to decide if you want to proceed with mass marketing of this racket. You estimate the sales price of the new racket to be $400 per racket and sales volume to be 1,000 units in year 1, 1,250 units in year 2; and 1,325 units in year 3. The project has a three year life. Variable costs amount to $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000 in assets which will be depreciated straight line to zero over the three year project life. The actual market value of these assets at the end of year three is expected to be $35,000. NWC requirements at the beginning of each year will be 20 percent of the projected sales during the coming year. The tax rate is 34 percent and the required return on the project is 10 percent.

a) What will the annual incremental cash flows for the project be?

b) Using NPV analysis should the project be undertaken? Explain.

Reference no: EM131189255

Questions Cloud

Do you agree that society is intoxicated with technology : Are there any benefits or negative side effects of technology in business that have not been mentioned? -Discuss.

End inventory level and the inventory turnover ratio : Jasper Furnishings has $300 million in sales. The companyexpects that its sales will increase 12 percent this year.Jasper’s CFO uses a simple linear regression to forecast thecompany’s inventory level for a given level of projectedsales. what are you..

Debt–total asset ratios : Firm A and Firm B have debt–total asset ratios of 40 percent and 30 percent and returns on total assets of 9 percent and 14 percent, respectively. What is the return on equity for Firm A and Firm B?

Why may it be easier in performing an internal assessment : Why may it be easier in performing an internal assessment to develop a list of 80 strengths/weaknesses than to decide on the top 20 to use in formulating strategies?

What will the annual incremental cash flows for project : You have developed a new a new recreational tennis racket with tennis great Jimmy Connors. You have paid Jimmy Connors for his involvement in the project $250,000. The racket is state of the art and guaranteed to correct any backhand. What will the a..

Explain why you feel these strengths are important : Identify what you found to be the "strengths" you believe must be considered in developing a strategic plan. Identify three things from the articles that you think will be very important to consider when you participate in the discussion of a stra..

Create an engaging vocabulary game that utilizes : Create an engaging vocabulary game that utilizes five different teaching strategies for vocabulary development. These strategies should also address Common Core's three tiers of academic language.

Can you identify any specific decision making errors : Think about a time when you've been in a group that had to make a collective decision that didn't turn out well.- Can you identify any specific decision-making errors the team made?

What is the depreciation expense : Given the following information for O'Hara Marine Co., calculate the depreciation expense: sales = $53,000; costs = $21,900; addition to retained earnings = $11,150; dividends paid = $1,200; interest expense = $4,300; tax rate = 35 percent. What is t..

User Account

All Pages