Ooiem 12-12. The di eISIole and realistic goal; however, they are co e nead office have increased their overhead cover expectation to 100 also just been announced that corporation tax is due to rise to 24 perce the impact of these two changes and the improvement required in ope to generate the same level of projected profitability for 300,000 units. 14. (Calculating project cash flows and NPV) (Related to Checkpoint 12.1 As part of its planning for the coming Christmas season, Criswell Mc considering whether to expand its product line that currently consists to include gas-powered skateboards. The company feels it can sell 2, per year for 10 years (after which time this project is expected to shu solar-powered skateboards taking over). Each gas-powered skateboa variable costs of $40 and sell for $200; annual fixed costs associateč would be $160,000. In addition, there would be a $450,000 initial en ciated with the purchase of new production equipment. It is assumee fied straight-line method would be used to depreciate this initial exp to zero over 10 years. The project would also require a one-time ini $50,000 in net working capital associated with inventory, and this u investment would be recovered when the project is shut down. Fina marginal tax rate is 34 percent. a. What is the initial cash outlay associated with this project? b. What are the annual net cash flows associated with this project for c. What is the terminal cash flow in Year 10 (that is, what is the free 10 plus any additional cash flows associated with termination of a 10 percent required rate of n
Ooiem 12-12. The di eISIole and realistic goal; however, they are co e nead office have increased their overhead cover expectation to 100 also just been announced that corporation tax is due to rise to 24 perce the impact of these two changes and the improvement required in ope to generate the same level of projected profitability for 300,000 units. 14. (Calculating project cash flows and NPV) (Related to Checkpoint 12.1 As part of its planning for the coming Christmas season, Criswell Mc considering whether to expand its product line that currently consists to include gas-powered skateboards. The company feels it can sell 2, per year for 10 years (after which time this project is expected to shu solar-powered skateboards taking over). Each gas-powered skateboa variable costs of $40 and sell for $200; annual fixed costs associateč would be $160,000. In addition, there would be a $450,000 initial en ciated with the purchase of new production equipment. It is assumee fied straight-line method would be used to depreciate this initial exp to zero over 10 years. The project would also require a one-time ini $50,000 in net working capital associated with inventory, and this u investment would be recovered when the project is shut down. Fina marginal tax rate is 34 percent. a. What is the initial cash outlay associated with this project? b. What are the annual net cash flows associated with this project for c. What is the terminal cash flow in Year 10 (that is, what is the free 10 plus any additional cash flows associated with termination of a 10 percent required rate of n
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:ull Airtel WiFi ?
12:17
C @ 0 75%O
Oolem12–12. The directors believe
ISIOTE and realistic goal; however, they are concerned that
e nead office have increased their overhead cover expectation to 100,000. It has
also just been announced that corporation tax is due to rise to 24 percent. Consider
the impact of these two changes and the improvement required in operating margin
to generate the same level of projected profitability for 300,000 units.
14. (Calculating project cash flows and NPV) (Related to Checkpoint 12.1 on page 410)
2-19
As part of its planning for the coming Christmas season, Criswell Motorsports is
considering whether to expand its produ
to include gas-powered skateboards. The company feels it can sell 2,000 of these
per year for 10 years (after which time this project is expected to shut down, with
solar-powered skateboards taking over). Each gas-powered skateboard would have
variable costs of $40 and sell for $200; annual fixed costs associated with production
would be $160,000. In addition, there would be a $450,000 initial expenditure asso-
ciated with the purchase of new production equipment. It is assumed that the simpli-
fied straight-line method would be used to depreciate this initial expenditure down
to zero over 10 years. The project would also require a one-time initial investment of
$50,000 in net working capital associated with inventory, and this working-capital
investment would be recovered when the project is shut down. Finally, the firm's
marginal tax rate is 34 percent.
line that currently consists of skateboards
a. What is the initial cash outlay associated with this project?
b. What are the annual net cash flows associated with this project for Years 1 through 9?
c. What is the terminal cash flow in Year 10 (that is, what is the free cash flow in Year
10 plus any additional cash flows associated with termination of the project)?
d. What is the project's NPV, given a 10 percent required rate of return?
oncidering adding new elliptical
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