1. Incremental costs - Initial and terminal cash flow Consider the case of Alexander Industries: Alexander Industries is considering a project that requires an investment in new equipment of $3,400,000, with an additional $170,000 in shipping and installation costs. Alexander estimates that its accounts receivable and inventories need to increase by $680,000 to support the new project, some of which is financed by a $272,000 increase in spontaneous liabilities (accounts payable and accruals). The total cost of Alexander’s new equipment is and consists of the price of the new equipment plus the . In contrast, Alexander’s initial net investment outlay is . Suppose Alexander’s new equipment is expected to sell for $400,000 at the end of its four-year useful life, and at the same time, the firm expects to recover all of its net working capital investment. The company chose to use straight-line depreciation, and the new equipment was fully depreciated by the end of its useful life. If the firm’s tax rate is 40%, what is the project’s total termination cash flow? $240,000 $400,000 $568,000 $648,000
1. Incremental costs - Initial and terminal cash flow Consider the case of Alexander Industries: Alexander Industries is considering a project that requires an investment in new equipment of $3,400,000, with an additional $170,000 in shipping and installation costs. Alexander estimates that its accounts receivable and inventories need to increase by $680,000 to support the new project, some of which is financed by a $272,000 increase in spontaneous liabilities (accounts payable and accruals). The total cost of Alexander’s new equipment is and consists of the price of the new equipment plus the . In contrast, Alexander’s initial net investment outlay is . Suppose Alexander’s new equipment is expected to sell for $400,000 at the end of its four-year useful life, and at the same time, the firm expects to recover all of its net working capital investment. The company chose to use straight-line depreciation, and the new equipment was fully depreciated by the end of its useful life. If the firm’s tax rate is 40%, what is the project’s total termination cash flow? $240,000 $400,000 $568,000 $648,000
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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1. Incremental costs - Initial and terminal cash flow
Consider the case of Alexander Industries:
Alexander Industries is considering a project that requires an investment in new equipment of $3,400,000, with an additional $170,000 in shipping and installation costs. Alexander estimates that its accounts receivable and inventories need to increase by $680,000 to support the new project, some of which is financed by a $272,000 increase in spontaneous liabilities (accounts payable and accruals).
The total cost of Alexander’s new equipment is and consists of the price of the new equipment plus the .
In contrast, Alexander’s initial net investment outlay is .
Suppose Alexander’s new equipment is expected to sell for $400,000 at the end of its four-year useful life, and at the same time, the firm expects to recover all of its net working capital investment. The company chose to use straight-line depreciation , and the new equipment was fully depreciated by the end of its useful life. If the firm’s tax rate is 40%, what is the project’s total termination cash flow?
$240,000
$400,000
$568,000
$648,000
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