Aunt Sally's Sauces Inc., is considering expansion into a new line of all-natural, cholesterol-free, sodium-free, fat-free, low- calorie tomato sauces. Sally has paid $5,000 for a marketing study which indicates that the new product line would have sales of $870,000 per year for the next six years. Manufacturing plant and equipment would cost $600,000 and will be depreciated using the following annual depreciation rates: 0.2, 0.32, 0.1920, 0.1152, 0.1152, 0.0576. The fixed assets will have no market value at the end of six years. Annual fixed costs are projected at $80,000 and variable costs are projected at 28% of sales. Net operating working capital requirements are $75,000 for the six-year life of the project; the outlay for working capital will be recovered at the end of six years. Aunt Sally's tax rate is 25% and the firm requires a 5% return. The NPV of this project is $
Aunt Sally's Sauces Inc., is considering expansion into a new line of all-natural, cholesterol-free, sodium-free, fat-free, low- calorie tomato sauces. Sally has paid $5,000 for a marketing study which indicates that the new product line would have sales of $870,000 per year for the next six years. Manufacturing plant and equipment would cost $600,000 and will be depreciated using the following annual depreciation rates: 0.2, 0.32, 0.1920, 0.1152, 0.1152, 0.0576. The fixed assets will have no market value at the end of six years. Annual fixed costs are projected at $80,000 and variable costs are projected at 28% of sales. Net operating working capital requirements are $75,000 for the six-year life of the project; the outlay for working capital will be recovered at the end of six years. Aunt Sally's tax rate is 25% and the firm requires a 5% return. The NPV of this project is $
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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Question
![Aunt Sally's Sauces Inc., is considering
expansion into a new line of all-natural,
cholesterol-free, sodium-free, fat-free, low-
calorie tomato sauces. Sally has paid $5,000 for
a marketing study which indicates that the new
product line would have sales of $870,000 per
year for the next six years. Manufacturing plant
and equipment would cost $600,000 and will be
depreciated using the following annual
depreciation rates: 0.2, 0.32, 0.1920, 0.1152,
0.1152, 0.0576. The fixed assets will have no
market value at the end of six years. Annual
fixed costs are projected at $80,000 and
variable costs are projected at 28% of sales. Net
operating working capital requirements are
$75,000 for the six-year life of the project; the
outlay for working capital will be recovered at
the end of six years. Aunt Sally's tax rate is 25%
and the firm requires a 5% return. The NPV of
this project is $](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4be9aad3-8e98-4126-aa1b-3f7b2ac84ef1%2F55e9f908-4846-4847-94e1-5bfc96e5dce1%2Fiuj33n_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Aunt Sally's Sauces Inc., is considering
expansion into a new line of all-natural,
cholesterol-free, sodium-free, fat-free, low-
calorie tomato sauces. Sally has paid $5,000 for
a marketing study which indicates that the new
product line would have sales of $870,000 per
year for the next six years. Manufacturing plant
and equipment would cost $600,000 and will be
depreciated using the following annual
depreciation rates: 0.2, 0.32, 0.1920, 0.1152,
0.1152, 0.0576. The fixed assets will have no
market value at the end of six years. Annual
fixed costs are projected at $80,000 and
variable costs are projected at 28% of sales. Net
operating working capital requirements are
$75,000 for the six-year life of the project; the
outlay for working capital will be recovered at
the end of six years. Aunt Sally's tax rate is 25%
and the firm requires a 5% return. The NPV of
this project is $
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