9-2 Norister Inc. is considering introducing a new product line. This will require the purchase of new fixed assets of $2.4 million. The company estimates that demand for the new product will be approximately 15,000 units per year, with a price per unit of $100. The variable cost of producing each unit of the product is $35, and fixed costs per year will be $100,000. Demand for the product is expected to remain constant for six years, after which both demand and production will cease, and the associated fixed assets will have no salvage value. Depreciation on the fixed assets will be straight-line to zero. The company’s marginal tax rate is 35%, and the required return on the project is 13%. How will the after-tax operating cash flow (ATOCF) change if the number of units sold is 10% more than the projected demand of 15,000 units? Select one: a. ATOCF will increase by 8.94%. b. ATOCF will decrease by 8.94%. c. ATOCF will increase by 10%. d. ATOCF will decrease by 10%. e. ATOCF will remain unchanged.
9-2 Norister Inc. is considering introducing a new product line. This will require the purchase of new fixed assets of $2.4 million. The company estimates that demand for the new product will be approximately 15,000 units per year, with a price per unit of $100. The variable cost of producing each unit of the product is $35, and fixed costs per year will be $100,000. Demand for the product is expected to remain constant for six years, after which both demand and production will cease, and the associated fixed assets will have no salvage value. Depreciation on the fixed assets will be straight-line to zero. The company’s marginal tax rate is 35%, and the required return on the project is 13%. How will the after-tax operating cash flow (ATOCF) change if the number of units sold is 10% more than the projected demand of 15,000 units? Select one: a. ATOCF will increase by 8.94%. b. ATOCF will decrease by 8.94%. c. ATOCF will increase by 10%. d. ATOCF will decrease by 10%. e. ATOCF will remain unchanged.
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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9-2 Norister Inc. is considering introducing a new product line. This will require the purchase of new fixed assets of $2.4 million. The company estimates that demand for the new product will be approximately 15,000 units per year, with a price per unit of $100. The variable cost of producing each unit of the product is $35, and fixed costs per year will be $100,000. Demand for the product is expected to remain constant for six years, after which both demand and production will cease, and the associated fixed assets will have no salvage value.
Select one:
a. ATOCF will increase by 8.94%.
b. ATOCF will decrease by 8.94%.
c. ATOCF will increase by 10%.
d. ATOCF will decrease by 10%.
e. ATOCF will remain unchanged.
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