Net Present Value Carsen Sorensen, controller of Thayn Company, just received the following data associated with production of a new product: • Expected annual revenues: $750,000 Projected product life cycle: five years. Equipment: $800,000 with a salvage value of $100,000 after five years • Expected increase in working capital: $100,000 (recoverable at the end of five years) Annual cash operating expenses: estimated at $450,000 Required rate of return: 8 percent The present value tables provided in Exhibit 198.1 and Exhibit 198.2 must be used to solve the following problems. Required: 1. Estimate the annual cash flows for the new product. Enter cash outflows as negative amounts and cash inflows as positive amounts. Year 0 1-4 5 $ Cash Flow 2. Using the estimated annual cash flows, calculate the NPV Year 3. What if revenues were overestimated by $150,0007 Redo the NPV analysis, correcting for this error. Assume the operating expenses remain the same. Enter cash outflows as negative amounts and cash inflows as positive amounts. Present Value 0 1-4 5 Net present value Cash Flow

Net Present Value Carsen Sorensen, controller of Thayn Company, just received the following data associated with production of a new product: • Expected annual revenues: $750,000 Projected product life cycle: five years. Equipment: $800,000 with a salvage value of $100,000 after five years • Expected increase in working capital: $100,000 (recoverable at the end of five years) Annual cash operating expenses: estimated at $450,000 Required rate of return: 8 percent The present value tables provided in Exhibit 198.1 and Exhibit 198.2 must be used to solve the following problems. Required: 1. Estimate the annual cash flows for the new product. Enter cash outflows as negative amounts and cash inflows as positive amounts. Year 0 1-4 5 $ Cash Flow 2. Using the estimated annual cash flows, calculate the NPV Year 3. What if revenues were overestimated by $150,0007 Redo the NPV analysis, correcting for this error. Assume the operating expenses remain the same. Enter cash outflows as negative amounts and cash inflows as positive amounts. Present Value 0 1-4 5 Net present value Cash Flow

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Subject: acounting
1. Batinah Water Desalination project is a 15 year project. The project manager estimated that net initial investment expend in year zero is 100 million rials. The investment will be depreciated on a straight line basis to a 10 million book value by enc the project. During the operating phase revenue per year is 35 million and expense per year is estimated to be 20 million ria per year for 15 years. In year 15 net salvage value is estimated to be 15 million. WACC is estimated to be 10%. Tax Rate 209 1. Calculațe annual depreciation expenses 2. Calculate cash flow after tax CFAT in year 5 3. Calculate net present value. 4. Is it a good project Only final answers are required
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