Good day, may I have some assistance with the attached pic Ocean Tide Industries is planning to introduce a new product with a projected life of eightyears. The project is in the government’s preferred industry list and qualifies for a one-timesubsidy of $2,000,000 at the start of the project. Initial equipment (IE) will cost $14,000,000and an additional equipment (AE) costing $1,000,000 will be needed at the end of year 2. Atthe end of 8 years, the original equipment, IE, will have no resale value but the supplementaryequipment, AE, can be sold for its book value of $100,000. A working capital of $1,500,000will be needed.The sales volume over the eight-year period have been forecast as follows:Year 180,000 unitsYear 2120,000 unitsYears 3-5300,000 unitsYears 6-8200,000 unitsA sale price of $100 per unit is expected and the variable expenses will amount to 40% of salesrevenue. Fixed cash operating expenses will amount to $1,600,000 per year.Additionally, an extensive advertising campaign will be launched, which will need annualexpenses as follows:Year 1$3,000,000Year 2$1,500,000Years 3-5$1,000,000Years 6-8$400,000The company falls in the 50% tax category and believes 12% to be an appropriate estimate forits after-tax cost of capital for a project of this nature. All equipment is depreciated on a straight-line basis. In the event of a negative taxable income, the tax is computed as usual and is reportedas a negative number, indicating a reduction in loss after tax.You are required to:4. Compute the OCF for years 1 through 8 -5. Compute the Terminal cash flow -6. Compute the FCF for years 1 through 8

Answers. (4) OCF = Earnings after tax + Depreciation The calculation of OCF for year 1 to year 8…

Ocean Tide Industries is planning to introduce a new product with a projected life of eigh years. The project is in the government's preferred industry list and qualifies for a one-tim subsidy of $2,000,000 at the start of the project. Initial equipment (IE) will cost $14,000,00 and an additional equipment (AE) costing $1,000,000 will be needed at the end of year 2. A the end of 8 years, the original equipment, IE, will have no resale value but the supplementar equipment, AE, can be sold for its book value of $100,000. A working capital of $1,500,00 will be needed. The sales volume over the eight-year period have been forecast as follows: Year 1 80,000 units 120 000

Ocean Tide Industries is planning to introduce a new product with a projected life of eigh years. The project is in the government's preferred industry list and qualifies for a one-tim subsidy of $2,000,000 at the start of the project. Initial equipment (IE) will cost $14,000,00 and an additional equipment (AE) costing $1,000,000 will be needed at the end of year 2. A the end of 8 years, the original equipment, IE, will have no resale value but the supplementar equipment, AE, can be sold for its book value of $100,000. A working capital of $1,500,00 will be needed. The sales volume over the eight-year period have been forecast as follows: Year 1 80,000 units 120 000

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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