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Sales price pe Variable cost Annual fixed Working-capi 200,000 to ge apital will be vestment in v ears 3 througl e project at the e depreciatio

Sales price pe Variable cost Annual fixed Working-capi 200,000 to ge apital will be vestment in v ears 3 througl e project at the e depreciatio

Essentials Of Investments
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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dgeting Sales price per unit: $300/unit in Years 1–4, $250/unit in Year 5 Variable cost per unit: $200/unit Annual fixed costs: $950,000 Working-capital requirements: There will be an initial working-capital requirement of $200,000 to get production started. For each year, the total investment in net working capital will be equal to 10 percent of the dollar value of sales for that year. Thus, the investment in working capital will increase during Years 1 and 2 and then decrease in Years 3 through 5. Finally, all working capital will be liquidated at the termination of the project at the end of Year 5. The depreciation method: Use the simplified straight-line method over five years. It s assumed that the plant and equipment will have no salvage value after five years. 12-23. (Calculating cash flows in a Cor-
Transcribed Image Text:dgeting Sales price per unit: $300/unit in Years 1–4, $250/unit in Year 5 Variable cost per unit: $200/unit Annual fixed costs: $950,000 Working-capital requirements: There will be an initial working-capital requirement of $200,000 to get production started. For each year, the total investment in net working capital will be equal to 10 percent of the dollar value of sales for that year. Thus, the investment in working capital will increase during Years 1 and 2 and then decrease in Years 3 through 5. Finally, all working capital will be liquidated at the termination of the project at the end of Year 5. The depreciation method: Use the simplified straight-line method over five years. It s assumed that the plant and equipment will have no salvage value after five years. 12-23. (Calculating cash flows in a Cor-
1234tn Imucme be purchased? don UI uiC project)! 1222. (Calculating project cash flows, NPV, profitability index, and internal rate of return in a comprehensive problem) (Related to Checkpoint 12.1 on page 410) Traid Winds Corporation, a firm in the quired rate of return or discount rate, is considering a new project that involves the introduction of a new product. This project is expected to last five years, and then, because this is somewhat of a fad project, it will be terminated. Given the follow- ing information, determine the net cash flows associated with the project and the project's NPV, profitability index, and internal rate of return. Apply the appropri- ate decision criteria. percent marginal tax bracket with a 15 percent re- Cost of new plant and equipment: Shipping and installation costs: $26,800,000 $ 200,000 Unit sales: Year Units Sold 65,000 125,000 120,000 80,000 70,000
Transcribed Image Text:1234tn Imucme be purchased? don UI uiC project)! 1222. (Calculating project cash flows, NPV, profitability index, and internal rate of return in a comprehensive problem) (Related to Checkpoint 12.1 on page 410) Traid Winds Corporation, a firm in the quired rate of return or discount rate, is considering a new project that involves the introduction of a new product. This project is expected to last five years, and then, because this is somewhat of a fad project, it will be terminated. Given the follow- ing information, determine the net cash flows associated with the project and the project's NPV, profitability index, and internal rate of return. Apply the appropri- ate decision criteria. percent marginal tax bracket with a 15 percent re- Cost of new plant and equipment: Shipping and installation costs: $26,800,000 $ 200,000 Unit sales: Year Units Sold 65,000 125,000 120,000 80,000 70,000
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