wagger Manufacturing Corporation (SMC) is planning to invest in new machinery to produce a new product line. The invoice price of the machinery is $320,000. It would require $10,000 in shipping expenses and $20,000 in installation costs. The machinery falls in MACRS 3-year class with depreciation rates of 33.33% for the first year, 44.45% for the second year, 14.81% for the third year, and 7.41% for the fourth year. SMC plans to use the new machinery for four years and it is expected to have a salvage value of $75,000 after four years of use. SMC expects the new machinery to generate sales of 1,500 units in the first year. Unit growth is expected to be 4% after the first year.  The company estimates that the new product will sell for $225 per unit in the first year with a cost of $150 per unit, excluding depreciation. Management projects that both the sale price and the cost per unit will increase by 3% per year due to inflation. Net working capital is projected to be 15% of next year’s sales. The firm’s marginal tax rate is 30%.   Investment-related cash flow forecasts: Invoice price of the machinery = $320,000 Shipping charges = $10,000 Installation cost = $20,000 Salvage value = $75,000 Investment in net working capital = 15% of next year’s sales   MACRS depreciation rates: Year 1: 0.3333 Year 2: 0.4445 Year 3: 0.1481 Year 4: 0.0741   Operating cash flow forecasts: Project’s economic life = 4 years Year 1 unit sales = 1,500 units Unit growth = 4% Year 1 price per unit = $225.00/unit Year 1 cost per unit = $150.00/unit Inflation rate = 3%

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Swagger Manufacturing Corporation (SMC) is planning to invest in new machinery to produce a new product line. The invoice price of the machinery is $320,000. It would require $10,000 in shipping expenses and $20,000 in installation costs. The machinery falls in MACRS 3-year class with depreciation rates of 33.33% for the first year, 44.45% for the second year, 14.81% for the third year, and 7.41% for the fourth year. SMC plans to use the new machinery for four years and it is expected to have a salvage value of $75,000 after four years of use.

SMC expects the new machinery to generate sales of 1,500 units in the first year. Unit growth is expected to be 4% after the first year.  The company estimates that the new product will sell for $225 per unit in the first year with a cost of $150 per unit, excluding depreciation. Management projects that both the sale price and the cost per unit will increase by 3% per year due to inflation. Net working capital is projected to be 15% of next year’s sales. The firm’s marginal tax rate is 30%.

 

Investment-related cash flow forecasts:

Invoice price of the machinery = $320,000

Shipping charges = $10,000

Installation cost = $20,000

Salvage value = $75,000

Investment in net working capital = 15% of next year’s sales

 

MACRS depreciation rates:

Year 1: 0.3333

Year 2: 0.4445

Year 3: 0.1481

Year 4: 0.0741

 

Operating cash flow forecasts:

Project’s economic life = 4 years

Year 1 unit sales = 1,500 units

Unit growth = 4%

Year 1 price per unit = $225.00/unit

Year 1 cost per unit = $150.00/unit

Inflation rate = 3%

The table above is a financial analysis sheet for a project, detailing various components across five time periods (0 to 4).

### Columns:
- **Time Period (0-4):** The columns represent different fiscal years or quarters.

### Rows and Their Details:

1. **Unit Sales:**
   - Period 1: 1500 units
   - Period 2: 1560 units
   - Period 3: 1622 units
   - Period 4: 1687 units

2. **Revenues ($):**
   - Period 1: $337,500.00
   - Period 2: $361,530.00
   - Period 3: $387,270.94
   - Period 4: $414,742.35

3. **Costs ($):**
   - Period 1: $225,000.00
   - Period 2: $241,020.00
   - Period 3: $258,180.62
   - Period 4: $276,494.90

4. **Depreciation ($):**
   - Period 0: $106,656.00 (Starting depreciation)
   - Period 1: $142,240.00
   - Period 2: $47,392.00
   - Period 3: $23,712.00

5. **EBIT (Earnings Before Interest and Taxes) ($):**
   - Period 1: $5,844.00
   - Period 2: -$21,730.00
   - Period 3: $81,698.31
   - Period 4: $114,535.45

6. **Taxes ($):**
   - Period 1: $101,250.00
   - Period 2: $108,459.00
   - Period 3: $116,181.28
   - Period 4: $124,422.70

7. **NOPAT (Net Operating Profit After Tax):** Data not provided.

8. **Depreciation (Reappears for Consistency):** Data not provided beyond what is stated.

9. **Operating Cash Flow:** Data not provided.

10. **Initial Investment:** Data not provided.

11. **After-tax Salvage Value:** Data not provided.

12. **Investment in Net Working Capital:** Data not
Transcribed Image Text:The table above is a financial analysis sheet for a project, detailing various components across five time periods (0 to 4). ### Columns: - **Time Period (0-4):** The columns represent different fiscal years or quarters. ### Rows and Their Details: 1. **Unit Sales:** - Period 1: 1500 units - Period 2: 1560 units - Period 3: 1622 units - Period 4: 1687 units 2. **Revenues ($):** - Period 1: $337,500.00 - Period 2: $361,530.00 - Period 3: $387,270.94 - Period 4: $414,742.35 3. **Costs ($):** - Period 1: $225,000.00 - Period 2: $241,020.00 - Period 3: $258,180.62 - Period 4: $276,494.90 4. **Depreciation ($):** - Period 0: $106,656.00 (Starting depreciation) - Period 1: $142,240.00 - Period 2: $47,392.00 - Period 3: $23,712.00 5. **EBIT (Earnings Before Interest and Taxes) ($):** - Period 1: $5,844.00 - Period 2: -$21,730.00 - Period 3: $81,698.31 - Period 4: $114,535.45 6. **Taxes ($):** - Period 1: $101,250.00 - Period 2: $108,459.00 - Period 3: $116,181.28 - Period 4: $124,422.70 7. **NOPAT (Net Operating Profit After Tax):** Data not provided. 8. **Depreciation (Reappears for Consistency):** Data not provided beyond what is stated. 9. **Operating Cash Flow:** Data not provided. 10. **Initial Investment:** Data not provided. 11. **After-tax Salvage Value:** Data not provided. 12. **Investment in Net Working Capital:** Data not
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