Current Attempt in ProgressGiven the soaring price of gasoline, Ford is considering introducing a new production line of gas-electric hybrid sedans. The expectedannual unit sales of the hybrid cars is 35,000; the price is $25,000 per car. Variable costs of production are $13,000 per car. The fixedoverhead including salary of top executives is $80 million per year. However, the introduction of the hybrid sedan will decrease Ford'ssales of regular sedans by 6,000 cars per year; the regular sedans have a unit price of $20,000, a unit variable cost of $12,000, andfixed costs of $250,000 per year. Depreciation costs of the production plant are $51,000 per year. The marginal tax rate is 40 percent.What is the incremental annual cash flow from operations?Incremental annual cash flow from operations$

Incremental Annual Cash Flow from Operation is that which is earned by the investor due to…

Answered: Given the soaring price of gasoline,…

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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Hit or Miss Sports is introducing a new product this year. If its see-at-night soccer balls are a hit, the firm expects to be able to sell 42,800 units a year at a price of $70 each. If the new product is a bust, only 20,700 units can be sold at a price of $45. The variable cost of each ball is $26 and fixed costs are zero. The cost of the manufacturing equipment is $5.86 million, and the project life is estimated at 10 years. The firm will use straight-line depreciation over the 10-year life of the project. The firm's tax rate is 35% and the discount rate is 14%. a. If each outcome is equally likely, what is the expected NPV? ( Use the minus sign for negative value. Round your answer to the nearest dollar.) NPV $ Will the firm accept the project? The firm will (Click to select) v the project. b. Suppose now that the firm can abandon the project and sell off the manufacturing equipment for $5.2 million if demand for the balls turns out to be weak. The firm will make the decision to…
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