You are the CFO of Oriole, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a life of 20 years. It will generate annual sales of 4,000 exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operating expenses of running the store, including labor and rent, will amount to 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $30,900,000 and will be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $1,000,000 in additional working capital immediately, and recover it at the end of the investment. Your firm's marginal tax rate is 30 percent. The opportunity cost of opening up the store is 10.80 percent. What are the incremental free cash flows from this project at the beginning of the project as well as in years 1-19 and 20? (Do not round intermediate calculations. Round NPV answer to 2 decimal places, e.g. 5,265.25 and all other answers to the nearest dollar, e.g. 5,265.) Incremental cash flow at the beginning of the project $ $ Incremental cash flow in the years 1-19 $ Incremental cash flow in the year 20 $ NPV of the project Should you approve it? the project. You tA TA TA
You are the CFO of Oriole, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a life of 20 years. It will generate annual sales of 4,000 exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operating expenses of running the store, including labor and rent, will amount to 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $30,900,000 and will be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $1,000,000 in additional working capital immediately, and recover it at the end of the investment. Your firm's marginal tax rate is 30 percent. The opportunity cost of opening up the store is 10.80 percent. What are the incremental free cash flows from this project at the beginning of the project as well as in years 1-19 and 20? (Do not round intermediate calculations. Round NPV answer to 2 decimal places, e.g. 5,265.25 and all other answers to the nearest dollar, e.g. 5,265.) Incremental cash flow at the beginning of the project $ $ Incremental cash flow in the years 1-19 $ Incremental cash flow in the year 20 $ NPV of the project Should you approve it? the project. You tA TA TA
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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Transcribed Image Text:You are the CFO of Oriole, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a life
of 20 years. It will generate annual sales of 4,000 exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operating expenses of
running the store, including labor and rent, will amount to 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $30,900,000 and will be fully
depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $1,000,000 in additional working capital immediately, and recover it at the end of the
investment. Your firm's marginal tax rate is 30 percent. The opportunity cost of opening up the store is 10.80 percent. What are the incremental free cash flows from this project at the
beginning of the project as well as in years 1-19 and 20? (Do not round intermediate calculations. Round NPV answer to 2 decimal places, e.g. 5,265.25 and all other answers to the
nearest dollar, e.g. 5,265.)
Incremental cash flow at the beginning of the project
$
$
Incremental cash flow in the years 1-19
$
Incremental cash flow in the year 20
$
NPV of the project
Should you approve it?
the project.
You
tA
TA
TA
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