Your company is developing a new textbook for FIN 301 and you paid your current FIN 301 instructor $700,000 for his input about the feasibility of such a product.The project would involve initial capital investment of $1,200,000 and installation costs related to the capital expenditures of $600,000. The project would also necessitate an increase in net workingcapital of $200,000 at the beginning of the project.You can straight line depreciate any depreciable expenses to zero over the three-year life of the project, and you don't expect the capital investment to be sold at the end of the project.Each year, you estimate you will receive $3,000,000 in sales revenue from your awesome textbook. Variable product and selling costs associated with these sales are expected to be 40% of revenuein each of those years. The fixed costs in each of the three years of the project will be $500,000. The corporate tax rate is 40%.Calculate the total year 0 cash flows associated with the project.$Calculate the year 1 EBIT.$Calculate the TOTAL year 1 cash flows associated with the project.$Calculate the TOTAL year 3 cash flows associated with the project.

Free cash flow is that amount which is earned by the investor from the project. It is the net amount…

Answered: Your company is developing a new…

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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Use the following information for the next four questions: The Anti-Zombie Corporation is considering expanding one of its production facilities to research a new type of virus, which will hopefully not cause a future zombie outbreak. The project would require a $24,000,000 capital investment and will be depreciated (straight-line to zero) over its 3 year life. They know that they will be able to salvage $6,000,000 for the equipment at that time. Incremental sales are expected to be $16,000,000 annually for the 3 year period with costs (excluding depreciation) of 40% of sales. The company would also have to commit initial working capital to the project of $2,000,000. The company has a 30% tax rate, and requires a 15% rate of return for projects of this risk level.
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XYZ Inc., the Calapan-based computer manufacturer, has developed a new all-in-one device: phone, music-player, camera, GPS, and computer. The device is called the iPip. The following data have been collected regarding the iPip project. The company has identified a prime piece of real estate and must purchase it immediately for $100,000. In addition, R&D expenditures of $175,000 must be made immediately. During the first year the manufacturing plant will be constructed. The plant will be ready for operation at the end of Year 1. The construction costs are $500,000 and will be paid upon completion. At the end of the Year 1, an inventory of raw materials will be purchased costing $50,000. Production and sales will occur during years 2 and 3. (Assume that all revenues and operating expenses are received (paid) at the end of each year.) Annual revenues are expected to be $850,000. Fixed operating expenses are $100,000 per year and variable operating expenses are 25% of sales. The…
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