Etobicoke Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): Revenues Operating Expenses (other than depreciation) CCA Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate Year 1 128.5 47.2 29.9 3.1 28.7 35% Year 2 155.5 63.7 34.1 8.9 41.6 D 35% a. What are the incremental earnings for this project for years 1 and 2? (Note: Assume any incremental cost of goods sold is included as part of operating expenses.) b. What are the free cash flows for this project for the first two years?

Etobicoke Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): Revenues Operating Expenses (other than depreciation) CCA Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate Year 1 128.5 47.2 29.9 3.1 28.7 35% Year 2 155.5 63.7 34.1 8.9 41.6 D 35% a. What are the incremental earnings for this project for years 1 and 2? (Note: Assume any incremental cost of goods sold is included as part of operating expenses.) b. What are the free cash flows for this project for the first two years?

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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Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): a. What are the incremental earnings for this project for years 1 and 2? (Note: Assume any incremental cost of goods sold is included as part of operating expenses.) b. What are the free cash flows for this project for years 1 and 2? (Click on the following icon in order to copy its contents into a spreadsheet.) Revenues Operating Expenses (other than depreciation) Depreciation Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate Year 1 126.8 42.5 25.9 3.3 26.5 21 % Year 2 165.1 62.5 26.5 7.4 35.4 21 %
Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after - tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 11%. 0 1 2 3 4 Project A -1,050 650 435 280 330 Project B -1,050 250 370 430 780 What is Project A's payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project A's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project B's payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project B's discounted payback? Do not round intermediate…
Epiphany Industries is considering a new capital budgeting project that will last for three years. Epiphany plans on using a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projects: Year Sales (Revenues) Cost of Goods Sold (50% of Sales) - Depreciation = EBIT - Taxes (20%) = unlevered net income - 0 OA. $37,500 OB. $60,000 OC. $50,000 O D. $70,000 1 125,000 62,500 25,000 37,500 7,500 30,000 25,000 - 5000 + Depreciation + changes to working capital - capital expenditures - 90,000 The free cash flow for the first year of Epiphany's project is closest to: 2 125,000 62,500 25,000 37,500 7,500 30,000 25,000 -5000 3 125,000 62,500 25,000 37,500 7,500 30,000 25,000 -5000
The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales Operating costs (not including depreciation) $ $ 22 million 10 million $ 6 million $ 4 million $ Depreciation Interest expense The company faces a 25% tax rate. What is the project's cash flow for the first year (t = 1)? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar.
Project Cash Flow The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales $24 million Operating costs (not including depreciation) $13 million Depreciation $5 million Interest expense $4 million The company faces a 25% tax rate. What is the project's operating cash flow for the first year (t = 1)? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar. $
Calculating operating cash flows) The Heritage Farm Implement Company is considering an investment that is expected to generate revenues of $3,000,000 per year. The project will also involve annual cash expenses (including both fixed and variable costs) of $900,000, while increasing depreciation by $400,000 per year. If the firm's tax rate is 34%, the project's estimated net operating profit after taxes (NOPAT) is $ (Round to the nearest dollar.) What is the project's annual operating cash flow?
Calculate the net cash inflows for each of the four years so that the NPV of the proposed investment is zero.
Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 11%. 0 1 2 3 4 Project A -1,150 700 370 260 310 Project B -1,150 300 305 410 760 What is Project A's payback? Do not round intermediate calculations. Round your answer to four decimal places. ______years What is Project A's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places. ________years What is Project B's payback? Do not round intermediate calculations. Round your answer to four decimal places. _________years…
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Project Cash Flow The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales $22 million Operating costs (not including depreciation) $8 million Depreciation $6 million Interest expense $5 million The company faces a 25% tax rate. What is the project's operating cash flow for the first year (t = 1)? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar. $
Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 7%. 0 1 2 3 4 Project A -1,150 650 375 290 340 Project B -1,150 250 310 440 790 What is Project A's payback? Round your answer to four decimal places. Do not round your intermediate calculations. years What is Project A's discounted payback? Round your answer to four decimal places. Do not round your intermediate calculations. years What is Project B's payback? Round your answer to four decimal places. Do not round your intermediate calculations. years What is…
Project Cash Flow The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales $22 million $11 million Operating costs (not including depreciation) Depreciation $4 million $4 million Interest expense The company faces a 25% tax rate. What is the project's operating cash flow for the first year (t = 1)? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar.

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